Corporate Law Assignment: Business Structures, Companies, and Law

This report examines corporate law, focusing on different business structures such as sole trader, partnership, and company structures. It delves into the features of a company, including its distinct identity, separation of ownership and management, and the differences between proprietary and public companies as defined by the Corporations Act 2001 (Cth). The report also explores the advantages and disadvantages of company structures, the process of forming an Australian company, and the legal implications of company names. Furthermore, it analyzes a case involving agency law, specifically the authority of employees to enter into contracts on behalf of a company, including the application of actual and ostensible authority, and the assumptions that third parties can make when dealing with a company. The report concludes with an analysis of a case where a salesperson exceeded their authority, and the legal rights of the involved parties.

Running Head: BUSINESS AND CORPORATION LAW 0
CoRPORATE Law Date : 30/05/2019

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Question 1
Different business structures are available for people that they can use to carry their
business. In the presented case, Michael is running his business as a sole trader. In such a
situation, he has some more options that majorly include partnership structure as well as
company structure as the business carries a commercial purpose. In order to discuss what a
company is, this is to mention that the same is the most formal business structure. The same
consist of many features that make this business structure different from others. One of the
important features is its distinct identity from its members and directors (Business.gov.au,
2018). As a company has a different and separate status it only a company is responsible for its
conduct. Neither a director nor a member has a personal obligation for the conduct of a
company. Another feature of this business structure is the separation of ownership and
management of the company. Management includes Directors and officers and shareholders
are real owners of the company. In general, directors take the business decision but not all the
powers are available to them. Shareholders are the people who make major decisions. This
feature of company structure is important for Michael, as he does not want to lose control and
decision making powers from his business. Here it is an option available to him that he can take
majority shares in the company and can make his son director of the same. In this manner, the
major decision making power will be in the hands of Michael.
Different types of companies are available there considering the liability of member and
involvement of people. For instance, a company in which liability of members is limited up to
the pending amount of share, the same is known as Limited Liability Company. On the other

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side, a company is known as an unlimited liability company where members are personally
responsible for the debts and liability of members.
Further, based on a number of members and the nature of people involved, companies
are majorly divided under the proprietary and public company. Corporations Act 2001 (Cth)
which is a corporation law in Australia defines these type of companies. Section 45A of the act
defines a proprietary company. As per this section, a proprietary company can only have a
maximum of 50 shareholders that do not include employee shareholders (Symes, 2016).
Further, this type of companies can be of two types such as a small and large proprietary
company. Subsection 2 of section 45A says that a proprietary company is considered as a small
proprietary company when the same fulfills at least two of the following requirements:-
 The total value of assets of the company and the companies controlled by the same is
less than $12.5 million at the end of a financial year (Mills, 2017)
 Total revenue of the company along with companies controlled by the same is less than
$25 million for a financial year (Clarke & Wilson, 2018)
 Total employees in the company along with employees of the companies it controls is
less than 50 (Gibson & Fraser, 2013)
As per section 45A (3) of the act, a proprietary company is a large proprietary company
when the same does not fulfill 2 or more conditions mentioned above.
A Public company is the one that may have more than 50 shareholders. Apart from a
minimum number of shareholders, other differences are also there between a proprietary
company and a public company. For instance, in the case of a public company, any person can

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become a member whereas in case of a proprietary company, only close relative, friends or
family members of promoters area shareholders in general. It means such companies cannot
issues share with the public. Further, only one director is required to be there for the formation
and operations of proprietary companies but in the case of public companies minimum 3
directors must be there in addition to one company secretary. In this way, it is clear that many
differences are there between a proprietary company and a public company. Michael thinks
that only disadvantages are associated with the company business structures hence they are
necessary to discuss here. The major business disadvantage is that in case of a proprietary
company, capital cannot be raised from the public. Further, many liabilities are there in case of
companies. As mentioned above, there is a separation in between management and
shareholders hence a company has to produce its financial results to shareholders and
Australian Securities and investment commission (ASIC) whenever it is applicable. An issue of
lack of secrecy is associated here. Apart from this, the cost is also high in cases of companies if
to compare this structure of the business with other business structures. However, Michael is
required to know that the benefits of this business structure are also there. One of the major
benefits is that in cases of insolvency of the company, creditors can sue the only company and
personal property of members and directors remain safe and secure. Further, if a company is
formed or converted into a public company, the same becomes to arrange funds from the
public. In addition to these, one more advantage is there which is associated with the company
business structure. The advantage is known as perpetual succession. It means a company goes
on forever despite the retirement or death of its members and directors. Here it is clear that
company business structure has advantages also in addition to disadvantages.

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Further, to discuss the formation process of an Australian company, this is to mention
that it involves 7 Step process. In the very first step, promoters of the company need to
evaluate the appropriateness of this business structure for their business. When they become
sure about the selection of this structure, they proceed with other steps. In the second step,
promoters think about the name of the company that is going to be incorporated. ASIC made
some guidelines on the selection of name process and promoters are required to decide the
company’s name considering these guidelines. Portal of ASIC provides the facility to check
availability of the name and by using the same one can ensure that a particular name will be
available or not. Then after promoters decide the governance rule under step 3. Here they may
opt replaceable rules or can decide to make their own constitution. Step 4 demands the
officeholders of the prospective company to know their rights and liabilities as an officeholder
in order to make them able to decide whether they wish to get this position or not. When they
are aware of their duties and responsibilities then they have to provide their consent that they
are ready to hold a position of the office holder in the company. These people are obliged to
give their consent in the written mode. The lead step is step number 6. The step is focused on
the registration of the company. The company can be registered online using the Australian
Government’s Business registration service. On the receipt of the application, ASIC reviews and
consider the same and then allocate Australian company. At last, when a company is registered,
directors and officeholders make them ensure that the company is using its name and ACN on
all the business communication letters and documents. This is the 7th and last step (Asic.gov.au,
2019).

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Another issue of the case is the name of the company that has been decided by
Michael’s son. They think that the name “Sicilian Treats” will be a good name but are required
to know whether the same will be available or not. After checking this name of ASIC portal, this
does not seem to be obtainable as already three businesses are working with the reassembled
name (Connectonline.asic.gov.au, 2019).
Question 2
Issue
What rights Poolworths Ltd has in this situation. Whether this part can sue Golden Gate
Technologies (GGT) Ltd
Rules
Directors, officers, employees, agents, and others are few people who remain there in a
company and deal with outsiders on behalf of a company. Employees of the company often
behave in the capacity of an agent as they work as per the instruction of employer and
employer remain liable to third parties for the acts performed by an employee. Nevertheless, to
say that an employee is not an agent of the company by default and therefore the same must
have some powers/authorities to do a particular transaction or to enter into a contract.
Authority can be granted in many ways such as in actual or ostensible mode. When the
authority is grated in a clear mode by oral or written words then the same is known as an actual
authority. Apart from this kind of authority, employees of a company can also get ostensible
authority. Such kind of authority present in the cases where a company by its act present a
person/employee as an agent before the third party and such outsider get an assumption about

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the valid authority of such a person. Corporations Act 2001 also provides certain assumption
that a third party can rely upon while dealing with the company. These assumptions are
mentioned in section 129 of the act. Here this is to inform that assumptions are granted to third
parties because such people cannot know what kind of authority a company provided to its
agent. Section 129 (C) of the act says that while dealing with officers or agent of the company a
third party can assume that the appointment of such people duly held and they have all the
powers that usually holders of these position has in other companies. Section 128 (3) of the act
further supports this assumption and states that the assumptions of section 129 are available to
a third party in each case even in those cases where an officer or agent act in a fraudulent
manner (Australia, 2011). Nevertheless, there is an exception where the assumption will not be
available to third parties. This is the situation where a third party can check the truth and has
doubt on the authority of officers and agent of the company.
The exception is mentioned under section 128 (4) of the section. As per the provisions of
this section, a person (third party/outsider) is not entitled to make the assumption under
section 129 where the same has reason to believe that the assumption may be wrong or
incorrect. Northside Developments Pty Ltd v Registrar-General (1990) 93 ALR 385 is a case,
which is closely related to this situation. In the given case court held that a person cannot
assume that a document is valid only because of the reason that the document consisted of the
common seal of the company if nature of document puts such person into an inquiry
(Lawcasesummaries.com, 2019). It means whenever there is a need for an inquiry, the third
party must conduct the same.

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Application
In the case presented hereby, George joined a company named Global Gate
Technologies Ltd (GGT), which is a software development company and keeps very good
products. George joined this company as salesperson and company developed a contract with
him. As per this contract, George could give the discount up to 10 %. GGT granted actual
authority to George. Brendan, CEO of another company named Poolworths Ltd approached
George as the same wanted to buy a new software developed by GGT. As the sale of the month
was not going good, hence George made a promise to Brendan to provide a 15% discount.
Further, Brendan discussed this deal with one of his colleague who shown doubt with respect
to George’s authority and stated to Brendan that he needs to be ensured about it. Brendan did
not make himself bother with due diligence and accepted the offer made by George. Here
applying the provisions of section 128 of CA 2001, assumptions under section 129 were
available to Brendan. As he was an outsider, hence he could rely on that George is duly
appointed and has the authority to provide a 15% discount. It does not take any matter that
George was acting fraudulently as section 128 (3) covers this aspect as well. However, the
exception of section 128 (4) will be applicable in this case as Brendan has reason to be
suspected about the authority of George. Further, as per the decision of the case of Northside
Developments Pty Ltd v Registrar-General also, Brendan was required to know the truth and to
conduct the proper due diligence.

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Conclusion
As Brendan did not check the authority of George where he was liable to do so hence
the assumption of section 129 (3) will not be available. Here his company i.e. Poolworths Ltd
cannot sue GGT.

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References
Asic.gov.au. (2019). Steps to register a company. Retrieved From: https://asic.gov.au/for-
business/registering-a-company/steps-to-register-a-company/#company-name
Australia. (2011). Australian Corporations & Securities Legislation 2011: Corporations Act 2001,
ASIC Act 2001, related regulations. Australia:: CCH Australia Limited.
Business.gov.au. (2018). Company. Retrieved From:
https://www.business.gov.au/planning/business-structures-and-types/business-
structures/company
Clarke, E., A. & Wilson, M. (2018). Accounting: An Introduction to Principles and Practice 9ed.
Australia: Cengage AU.
Connectonline.asic.gov.au. (2019) Check Name Availability. Retrieved From:
https://connectonline.asic.gov.au/RegistrySearch/faces/landing/NameAvail.jspx?
_adf.ctrl-state=gyq2kx4up_4
Corporations Act 2001 (Cth)
Gibson, A. & Fraser, D. (2013). Business Law 2014. Australia: Pearson Higher Education AU.
Lawcasesummaries.com (2019). Northside Developments Pty Ltd v Registrar-General (1990) 93
ALR 385. Retrieved From: https://lawcasesummaries.com/knowledge-base/northside-
developments-pty-ltd-v-registrar-general-1990-93-alr-385/

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Mills, A., D. (2017). Company Accounting - Prepare Financial Reports for Corporate Entities.
Australia: Cengage AU.
Northside Developments Pty Ltd v Registrar-General (1990) 93 ALR 385
Symes, C., F. (2016). Statutory Priorities in Corporate Insolvency Law: An Analysis of Preferred
Creditor Status. Oxon: Routledge.