Corporate Law Case Study: Shareholder Rights, Director Duties Analysis

This case study delves into various aspects of Australian corporate law, primarily focusing on shareholder rights and the duties of directors under the Corporation Act 2001. It examines the principle of a company as a separate legal entity and the roles of directors acting on its behalf. The analysis covers replaceable rules for company management, the adoption and modification of a company's constitution, and the effects of these rules on shareholders. A specific scenario involving managing directors acquiring shares from minority shareholders is assessed against the legal requirements for member consent. Furthermore, the case study discusses shareholder voting rights, the importance of annual general meetings, and the potential for modifying voting power. Finally, it addresses the removal of directors, referencing sections 201 to 207 of the Corporation Act, including eligibility criteria, appointment procedures, and grounds for disqualification due to mismanagement. The analysis also considers the implications of unfair dismissal laws and natural justice requirements in director removal processes. Desklib provides students access to a wide array of study tools and previously solved assignments.

Running head: CORPORATE LAW
Corporate Law
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer to question 1:......................................................................................................................2
Answer to question 2:......................................................................................................................4
Answer to question 3:......................................................................................................................5
Reference:........................................................................................................................................7

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Answer to question 1:
The history of the Australian Corporation law has been derived its origin from the
English Company law. Australian Securities and Investments Commissions is the main
regulatory authority who are taking care whether all the companies have maintained all the
provisions of the Corporation Act or not. It is a common principle of law that company is a
separate legal entity apart from its stockholders. The term stockholder includes the director,
shareholders and other person related to the company. This principle has been established in
Salomon v Salomon & Company [1897] AC 22. However, as company itself could not run its
business and therefore, the directors are acted on behalf of the company. Corporation Act 2001
prescribes all the necessary rules for managing a company as well as regulates the acts of the
directors. The company can be of different kinds such as public company and proprietary
company (Wierzbicka and Niklińska 2016). The fundamental guides for managing a company
are known as replaceable rules. The governance of a proprietary company can be managed easily
compared to the other companies. However, in case a person is acting as a sole director and sole
shareholder, the replaceable rules could not be applied on the same. A company can regulate its
work through its constitution. The constitution of the company has been discussed under section
136 of the Corporation Act 2001. According to this section, if certain persons put their signature
on the application for company’s registration, they will become the member of the company by
the rules of constitution (Symes 2016). A company can adopt constitution if any special
resolution to this effect can be passed by the court under section 233 of Corporation Act 2001. It
has been suggested by section 136(2) of the Corporation Act that the company can modify the
rules of the constitution or may repeal the same by way of special resolution. However, it has
been mentioned in section 233(3) of the Act that the company should delegate the power to

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repeal the constitutional provisions to the Court. The Corporation Act allows a company to
repeal the provisions of the company if the modification has been complied with properly and
section 136(3) of the Act has stated about certain further requirement that has been mentioned
under section 136(4) of the Act. Certain rules are mentioned for the public company under
section 136(5) where the company is directed to send a notice to the ASIC regarding the
proposed change made in the company. According to section 138 of the Act, ASIC is
empowered to direct a company to submit the combined copy regarding the constitution of the
company. The company, whose constitution is proposed to be changed, required sending its
member a copy of the constitution. The effects of the constitution and replaceable rules have
certain impacts on the members and stockholders. The effect of the constitution has been stated
under section 140 of the Corporation Act. The relationship between the company and the other
shareholders are dealt by the provision of the constitution and it has been stated that the all
members of the company must abide by the rules of the constitution until the members of the
company have made any change (Li 2014). Further observation has been made under section
140(2) of the Corporation Act that after getting the membership, no modified version will be
applied to the members unless they are expressing their consent in written format. However, the
modification should expect to take up more shares by the members or in case the modifications
are increases the liabilities of the members so that they can contribute more capital in the
company. Consent of the members are also required if responsibilities of the members are
increased regarding the transfer of shares.
In the present case, it has been observed that Dan, Melanie, Jarrod and Eva, who are the
managing directors and accountants of the company enjoying 20% shares each and rest of the
shares are divided in between the other shareholders. Many shareholders are holding less than

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1% shares in the company. However, the directors of the company held a general meeting and
decided to acquire the shares of any shareholder who are acquiring less than 5% share of the
company. The acquiring provision of share of shareholders is mandatory in nature. According to
the Corporation Act, the shareholders are the members of the company and as per the rules stated
under section 140(2), no modified rules will be imposed on the members without making them
aware of it and the members are required their consent over the same. Therefore, it can be stated
that if any member is against this rules regarding the share capturing, the newly amended rule
could not be imposed on them (Aroney et al. 2015).
Answer to question 2:
In a company, votes are casted by the shareholders in case of many important matters like
appointment directors; identify the corporate policies and all the essential changes for the interest
of the company. Casting vote is the fundamental right of the shareholders. However, in a
corporation, the directors and operation managers govern the daily works and therefore,
shareholders have no such duties and they get no right to vote regarding the management issues.
In case of important corporate issues like the election of the directors and amendment of the
charter of the company, the shareholders are required to cast their vote (Michael 2015). In a
company, annual general meeting holds an important position and it helps to maintain the
accountability among the board of directors. Certain important matters like financial position of
the company and other condominium matters of the company are discussed in this meeting. The
minutes that were taken in the previous general meeting approved in this meeting. In case of any
major projects, the framework of the project can be discussed in this meeting. However, if the
constitution of the company allows the director to make any reduction of the voting power of the
shareholders regarding the general meeting, they can make changes in it (Symes 2016). In case

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of any adverse situation, the constitution of the company can be modified; but before the same,
the members of the company are required to be get informed. The modified rules can be changed
if all the members of the company consent over the same.
Answer to question 3:
This part is dealing with the removal of director and section 201 to section 207 of the
Corporation Act is dealing with the same. Certain eligibilities of the directors have been
mentioned under section 201 of the Act. It has stated under section 201D of the Act that in case
any person is selected as the director of the company, he or she is required to express his consent
by writing. It has been mentioned under section 201H of the Act, other directors of the company
can appoint a director of the company. Corporation Act 2001 describes certain rules regarding
the removal of the directors from their post. According to section 203C of the Act, the members
of the company can remove a director of any proprietary company from his post. In this case, the
shareholders should call for special resolution. It has been mentioned under section 206A (2) of
the Act, in case a director of a company has failed to manage the operation of the company with
due diligence, he can be disqualified from their posts (McNulty and Stewart 2015).
In this case, it has been observed there are four directors in the company of which Dan
has taken certain decisions that are dominating in nature. However, one of the directors has
always provided her support to the alleged director. The problem cropped up when other two
directors are went against the decisions taken by the director and in certain period, certain
shareholders are also expressed their support in favor of the two directors and removal of the
alleged directors (Akison et al. 2017). There are sufficient provisions in the Corporation Act by
which the members or shareholders of a company can remove a director. However, the director

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can remove from his post if he has failed to perform his duty. It has been pointed out in section
203C of the Corporation Act that a director of the company can be removed by resolution but
another director should be appointed in his place. it has also been observed that if majority of the
directors are raised their voice against the alleged director, removal can be made possible
(Méndez, Pathan and García 2015). However, in this case, it is to be taken care that the general
provision of the unfair dismissal laws and natural justice requirements are met properly.

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Reference:
Akison, L.K., Andraweera, P.H., Bertoldo, M.J., Brown, H.M., Cuffe, J.S.M., Fullston, T.,
Holland, O. and Schjenken, J.E., 2017. The current state of reproductive biology research in
Australia and New Zealand: core themes from the Society for Reproductive Biology Annual
Meeting, 2016. Reproduction, Fertility and Development, 29(10), pp.1883-1889.
Aroney, N., Gerangelos, P., Murray, S. and Stellios, J., 2015. Foreword, Preface and Chapter
One of The Constitution of the Commonwealth of Australia: History, Principle and
Interpretation.
Li, Y., 2014. The impact of regulation on the financial performance of small corporations in
Australia: a structural equation modelling approach. In T WEI International Academic
Conference Proceedings. New Orleans, USA (Vol. 104, p. 118).
McNulty, T. and Stewart, A., 2015. Developing the governance space: A study of the role and
potential of the company secretary in and around the board of directors. Organization
Studies, 36(4), pp.513-535.
Méndez, C.F., Pathan, S. and García, R.A., 2015. Monitoring capabilities of busy and overlap
directors: Evidence from Australia. Pacific-Basin Finance Journal, 35, pp.444-469.
Michael, B., 2015. Criteria for identification of'corporations' and'trading corporations' under 51
(xx) of the Constitution. Bar News: The Journal of the NSW Bar Association, (Winter 2015),
p.8.
Salomon v Salomon & Company [1897] AC 22

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Symes, C.F., 2016. Statutory priorities in corporate insolvency law: an analysis of preferred
creditor status. Routledge.
Symes, C.F., 2016. Statutory priorities in corporate insolvency law: an analysis of preferred
creditor status. Routledge.
Wierzbicka, A. and Niklińska, N., 2016. The Legal Structure of the Joint-stock Company as the
Ultimate Source of Corporate Governance. Horyzonty Polityki, 7(20), pp.177-194.

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