Corporate Law Assignment - Company Law Issues and Advice

This corporate law assignment addresses several key issues for a client considering incorporating a business in Australia. The report begins by recommending a proprietary company structure and outlines the seven steps required for incorporation, as stipulated by the Australian Securitie...Read More

Running Head: BUSINESS AND CORPORATION LAW 0
Corporate Law Assignment
6/7/2019
Student’s Name

Corporate Law Assignment 1
To, Date: 07 June 2019
Jo Delaney, Lawyer
Delaney Williams Lawyers and Consultants
Sub:- Advice on Company Law matters
Ref:- Renae, Wendy and Jacqui Matter
Dear Sir,
This memorandum has been prepared after considering the case of the referred client. In the
presented memorandum, various issues would be answered that has been asked by the client. I
hope that the document will fulfill the purpose and you will find the same in order.
Yours sincerely
John White
Trainee Solicitor

Corporate Law Assignment 2
Issue 3
The client already has a business name registered that is Homesmart re-cycling. At present, they
are working in a quasi-partnership as they have been told. Here other business options are
available to them such as limited partnership and companies. Different kinds of companies are
there, that normally involves the proprietary company and public company. In the given case,
people involved in the business are friends and they have a close connection with each other.
Here a proprietary company looks like the best option for them. Their business is increasing and
in this manner, the proprietary company will provide them a formally incorporated business
structure. In order to incorporate such a company, some steps are required to be followed which
Australian Securities and Investments Commission stipulated. The very first step involved in the
incorporation process is to determine whether the company is a correct business structure or not.
As in the referred case, liabilities are not much and business is already running goods, a company
will be a good option. Moving towards another step, the same is relating to choosing a company
name. As the business name is already registered in this case then it will be beneficial for the
business to incorporate a company with the same name due to already developed brand image
and goodwill. Under the third step, business managers need to decide the manner in which their
prospective company will act. Here client would have different options. For instance, they can
simply choose replaceable rules for the management of the company. They also have another
option here as they can develop the constitution of their company and can make rules
accordingly. In addition to this, they can also go ahead with the combination of both. Once they
would be done with the manner of management then they will require to understand their
obligations as an office holder. An officeholder of a company has immense liabilities and the
client need to know them before forming this business structure. After understanding these

Corporate Law Assignment 3
responsibilities, they will be required to submit their written consent confirming that they are
ready to be a part of the company and to have a position of an officeholder in the same. For the
purpose of incorporation of a proprietary company, only one director is enough but the same
needs to be an Australian resident. Step 6 is the most significant step where a company actually
gets its registration done. The client can incorporate their proprietary company by using Business
Registration services offered by the Australian Government1. The documents are to be submitted
to ASIC as it is the ultimate authority, which approves companies in Australia. If ASIC would
find everything in order then the same will provide a registration certificate. After registration of
the company, the client will have to look upon other things. This is the final step prescribed by
ASIC. It says that once a company is registered it becomes the responsibility of directors and
officers to check whether the company has mentioned its name on all business documents and
communication or not. In this manner, the client would require to follow the 7 steps process in
order to incorporate a proprietary company in Australia.
Issue 4
Another issue is related to the contract. It is to assume that the client has incorporated a
company, now the same can enter into a contract with Footscray City Council (FCC). Here this is
to inform that a company is an artificial person but in addition to being the same, it is also a legal
person. Law provides a legal personality to a company and grants all the rights and powers
similar to an individual. A company, therefore, can do various tasks and things related to a
business that a natural person does2. Corporations Act 20013 and Common law prescribe the
1 Asic.gov.au, Steps to register a company (Web Page)
<https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/>.
2 Courtney Stanhope Kenny, A Selection of Cases Illustrative of the Law of Contract (Cambridge University Press,
2014) 214.
3 Corporations Act 2001 (Cth)

Corporate Law Assignment 4
power of a company. As per section 119 of the act, a company becomes a separate legal entity as
soon as it gets registered4. Staring from the powers of the company, this is to mention that the
same can enter into a contract and can act as a natural person. It means in the development of a
contract, company get all the contractual right such as the same can sue others for breach of
contract. It was decided in the case of Macaura v Northern Assurance Co Ltd5 that a company
can own assets in its name and members of the company or any other person would have no
interest in the same. Section 124 (1) of the act prescribe powers of a corporation6. Now, another
issue is that a company is not a natural person. It cannot sign the contract and other documents
itself and therefore the same has certain people who act on behalf of the same. These people are
known as directors and officeholders of the company. Many ways are there in which a document
can be signed and executed by the company. For a third party, it is necessary to ensure that a
contract signed by directors capacity to bind the company.
Here a client can select the method to enter into a contract. It means they can execute the
contract in a manner prescribed under the Corporations Act or the company’s constitution as
well. As the company is a distinct entity, hence no director or member can be held personally
liable for breach of any terms of the contract. Section 127 of the act stipulates the manner in that
directors may sign the contracts on behalf of the company. As per this section, at least 2 directors
are required to sign a document on behalf of a company7. The lead risk involved here is related to
the failure of a business idea. If for any reason, the company would become disable to continue
with the contract or fails to perform contractual performance then its assets will be under risk.
4 Legislation.gov.au, Corporations Act 2001 (Web Page) < https://www.legislation.gov.au/Details/C2017C00210>.
5 Macaura v Northern Assurance Co Ltd [1925] AC 619
6 Wipo.int, Corporations Act 2001 (Web Page) <https://www.wipo.int/edocs/lexdocs/laws/en/au/au196en.pdf>.
7 Kwm.com, From Concept to Completion: Contract execution – some basic rules (Web page, 01 June 2013)
<https://www.kwm.com/en/au/knowledge/insights/from-concept-to-completion-contract-execution-some-basic-
rules-20130601>.

Corporate Law Assignment 5
The other party of the contract i.e. FCC will be entitled to sue the company in case of any breach
that will affect the business of the company directly. Hence, in conclusion, this is to state that
yes, the company can enter into a contract with FCC in its own name and directors and members
will not be required to take any personal responsibility in relation to the same.
Issue 5
The client also raised a concern regarding the distribution of profits. As mentioned earlier, two
authorities are there in a company, which are directors and members. Here to mention that
directors are people responsible to manage the affairs of the company, to take decisions on behalf
of business and to do other business activities. Shareholders on the different side are actual
owners of the company. These are people who invest their money and the company uses their
money as capital. In return, to their investment, shareholders expect some value. As they are
owners of the company, they have right on the profits of the same. The shares of profit that are
distributed to shareholders are known as a dividend. It is right of every shareholder to receive the
dividend out of the profits of the company as per the number of shares when a company declares
the dividend. Law does not make it mandatory to declare dividend every year. According to the
replaceable rules given by CA 2001, it is the power of the board of directors to decide whether to
declare a dividend8. The company pays dividend out of the taxable profits. A company is also
required to save the funds for future projects and growth and development of the company. In
this manner, a company is not required to distribute its annual profits in a mandatory manner.
However, the company does so for the satisfaction of shareholders and to make them feel that
they are actually part of the company. By paying a dividend, the company shows that the same is
8 Behanlegal.com, LEGAL DUTIES IN MELBOURNE (Web Page) <https://www.behanlegal.com/directors-and-
shareholders-rights-and-obligat>.

Corporate Law Assignment 6
considering their interest. In this manner, there will be no obligation on the client to distribute its
annual profits each year.

Corporate Law Assignment 7
Bibliography
Legislations
Corporations Act 2001 (Cth)
Cases
Macaura v Northern Assurance Co Ltd [1925] AC 619
Books/Journals
Kenny Courtney Stanhope, A Selection of Cases Illustrative of the Law of Contract (Cambridge
University Press, 2014)
Other Resources
Asic.gov.au, Steps to register a company (Web Page)
<https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/>
Behanlegal.com, LEGAL DUTIES IN MELBOURNE (Web Page)
<https://www.behanlegal.com/directors-and-shareholders-rights-and-obligat>.
Kwm.com, From Concept to Completion: Contract execution – some basic rules (Web page, 01
June 2013) https://www.kwm.com/en/au/knowledge/insights/from-concept-to-completion-
contract-execution-some-basic-rules-20130601>
Legislation.gov.au, Corporations Act 2001 (Web Page) <
https://www.legislation.gov.au/Details/C2017C00210>
Wipo.int, Corporations Act 2001 (Web Page)
<https://www.wipo.int/edocs/lexdocs/laws/en/au/au196en.pdf>