LAW202 Corporations Law Assignment: Company Law and Liability

This document presents a detailed analysis of corporations law, addressing key concepts such as business structures, including sole proprietorships and companies (proprietary and public). The assignment explores the advantages and disadvantages of a company structure, the process of company incorporation in Australia, and the roles of directors and shareholders. It also examines the legal principles of agent authority, including actual and ostensible authority, and the indoor management doctrine, referencing relevant sections of the Corporations Act 2001 (Cth) and case law. The assignment uses a case study to illustrate these concepts, analyzing the rights and liabilities of companies and their agents.

Corporations Law
Student’s Name
5/22/2019

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Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................6
Issue.............................................................................................................................................6
Rules.............................................................................................................................................6
Application...................................................................................................................................8
Conclusion...................................................................................................................................9
References......................................................................................................................................10

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Question 1
Many type of business structures exits there, such as sole trading, partnership, limited liability
partnership, company, and others. The corporation is one of the most popular and significant
business structures that can be used by people for their current or new business. A company can
be established in many forms such as Proprietary Company and a public company that can be
further categorized as a company limited by shares or guarantee or unlimited company. A
proprietary company is a closely held company which can only have a maximum of 50 non-
employee shareholders and is not able to raise funds form the public. On the different side, as the
name implies a public company is the one that is not a proprietary company. It can raise funds
for the public and company can have as many shareholders as the same wants. Minimum
numbers of directors are also different for two of these companies, as in case of proprietary
company, at least one director is required to be there and the same must be resident of Australia,
whereas minimum three directors are required to be there in public companies, out of this, two
must be resident of Australia. In a Public company, a secretary is also required to be there and
the same must be resident of Australia.
Proprietary company can be of 2 types namely small proprietary company and large proprietary
company. As per section 45A of Corporations Act 2001 (Cth) (the act), a small proprietary
company is a company that fulfills two out of three conditions. These conditions are revenue of
the company for financial year is required to be less than $25 million, amount of gross assets of
the company at the end of financial year must be less than $25 million and at last at the end of
financial year number of employees must be less than 50 (Legislation.gov.au, 2019). Further, a

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company is named as large proprietary company, if the same breaches at least two conditions out
of these three.
In the case presented hereby, Michael already has his business in the form of sole proprietorship
firm and now two of his sons want to expand and convert the business into the company.
Different kinds of companies are available to them. Nevertheless, Michael is not sure about this
business structure and is concerned about control that he can lose under the new structure. Here
this is to inform that two groups of people are there in case of a company, one is management,
and another one is shareholders. Directors and officers are part of management whereas
shareholders are the actual owner of the company. Shareholders are people who invest their
capital in the company and receive shares of the same in consideration. Directors have the power
to act and to decide matters on behalf of the company. However, not every power lies with
directors. Shareholders can decide some matters, especially those that are most relevant and
significant and in this manner, this is to state that shareholders have ultimate decision-making
powers. Michael has an option in this scenario as he can be the major shareholder in the
company and can keep the final decision-making powers with him. In this manner, he will be
able to retain his control over the affairs of the company.
In Australia, one needs to approach the Australian Securities and Investments Commission for
registration of a company. Total seven steps are involved in the process of incorporation of an
Australian Company. First of all, a person has to ensure that the company is the right business
structure for his/her business. Secondly, he/she needs to check the availability of the name. A
company can be established by any name but the same must not be the one, which is restricted
by ASIC. One may check availability of name on the website of ASIC. After deciding the name
of the company, promoters have to decide whether the company will be operated through the

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constitution or replaceable rules, or grouping of both. After that as an office holder, one must
understand his/her obligation with respect to the company (Asic.gov.au, 2019). Under Step
number 5, written consent of all the members, officers and directors are required to take, that will
reflect their consent to be a part of the company. After deciding the name of prospective
directors and shareholders, promoters may file for 201 (according to the type of company),
which is the basic application form for the registration of companies in Australia. After this,
ASIC approve and register the company if find everything correct and suitable. There are also
certain post registration compliances that reflects under step number 7. This step says that
officers of the company must ensure that name of the company is properly printed and reflect on
all its communications such as on board of registered office and all the documents along with
ACN/ABN.
Sicilian Treats name does not seems to be available for company registration as already 3
businesses are running with resembling names (Connectonline.asic.gov.au, 2019).
In the given case Advantages of company, the structure is another concern of Michael, as he
thinks that this form of business only carries disadvantages and will prove a negative one for his
business. In the presented section, advantages and disadvantages will be discussed. Following
are the advantages of company structure outline for the reference of Michael:-
1. Limited liability of Shareholders: - In case of companies, members, and directors have
separate legal status from the company. As soon as a company is registered, the same
becomes a different legal person in the views of the law. Nevertheless, they take no
personal responsibility for the conducts that they do on behalf of the company. It means

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neither directors nor members can be held personally liable for any failure of
performance by the company (Yogaratnam, Xynas and Ann O'Connell, 2016).
2. Access to wider capital: -Funds can be raised through shareholders of the company by
issuing shares. Further loans can be taken from banks and other financial institutions.
When a company is registered as a public company, it becomes easier to raise funds as
the company can issue share to public and can target more people. Hence, it is clear that
the company can resolve lack of capital issues easily.
3. Separation of ownership and management: - As mentioned above Management and
ownership of a company remains in different hands. In this manner, the company can
appoint professional people as management of the company. It means if promoters of the
company face the issue of lack of knowledge in any area of business, the same can
introduced those people in the management that have good subject knowledge in the
matter related to business without losing the control from the same.
4. Perpetual Existence: - Every company has continuous existence, which means the
existence of the same does not get affected by the appointment or resignation of any
director or death or retirement of any member. Only law can bring a company to the end
by way of winding up or liquidation.
Above-mentioned are few advantages of company structure but in addition to these, some
disadvantages are also there that should be in knowledge of a person who is thinking to
incorporate a company. These disadvantages are mentioned as below:-
1. Expensive to establish and maintain - High cost is involved in case of registration of the
company. The registration fee for a Proprietary Company is $488, which is a sound
amount itself. Secondly, only registration of the company does not consist of high cost

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but the same has operation cost as well. Company has to file annual returns to ASIC and
need to conduct board and members meeting on prescribed intervals that attract a high
cost.
2. Lack of secrecy:- As mentioned in the above point, a company has to produce an annual
report to ASIC when the same is required to do and also need to prepare and submit a
different kind of reports such as shareholders report, corporate governance report,
sustainability reports and many other. Further board of directors decides the matters and
everything is discussed in a board meeting. In this manner, all the trade secrets go out and
no secrecy remains there. It may be harmful to the business of the company.
3. Personal Liability:- In general directors are not liable for the conduct of company, but
they can held in do not work in a proper manner and according to the duties prescribed
under the act. Directors may also have to pay fines in such a situation.
In this manner, it is clear that the company structure has some positives as well as the negative
sides.
Question 2
Issue
The issue of the case is to check the rights of Poolworths Ltd in against of Golden Gate
Technologies (GGT) Ltd.
Rules
As the company is not a natural person, hence it appoints some people to act on its behalf. These
include management as well as an employee of the company. These employees often act as an

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agent and therefore the company remains liable for the conducts that they do on behalf of the
company. Nevertheless a company can only be responsible for the conduct of its agent when
such agent has required authority. Such authority can be an actual authority as well as ostensible
authority. Actual authority is that authority which is expressly provided to the agent. On the
other side, ostensible authority is a situation where the agent does not have actual authority but
because of the conduct of principal, the third party takes an assumption of the existence of
authority. Law secures rights of third parties in this manner that cannot check whether an agent is
authorized to conduct a particular transaction on behalf of the company or not (Lipton and
Herzberg, 2007). In this manner, the third parties are required to have a belief that the person
who is performing activities on behalf of the company has actual or ostensible authority. Section
129 (3) of the act plays an important role here as it provides related provisions. As per the
provisions of this section, if the company holds out a person as an agent or officer then the third
party may assume that appointment of such person on subjective position has been duly made
and the same has authority to perform the task that other people on this position generally do.
Further subsection 2 of section 128 says that the assumptions prescribe under section 129 of the
act will also be available to an outsider if such officer or agent forges a document or act in a
fraudulent manner in relation to a transaction or dealings. This doctrine is known as indoor
management doctrine under common law as it makes focus on the internal authority level of a
company. Lastly, section 128 (4) of the act says that the third party/outsider cannot take the
assumptions mentioned section 129 if while dealing with an agent or officer of the company, the
same was aware of the fact that the person had no authority to conduct the respective transaction
or could know this fact. In a summarized way, this is to state that the company will be held
accountable to third parties for the conduct of its agents even when they act outside of the

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authority if the third party could not check the fact at the time of entering into transactions.
Northside Developments Pty Ltd v Registrar-General (1990) 93 ALR 385 is an important case to
discuss here. In the decision of the case, it was provided by the high court that it becomes the
responsibility of the third party to check the level of authority of agent and officers if the nature
of transaction put them in unreasonable believe.
Application
In the presented case, George was appointed as a salesman by Golden Gate Technologies (GGT)
Ltd. The company was engaged in the business of software development and making. George
while appointing on a said position entered into a contract according to which the same had
actual authority to provide discount up to 10%. He could provide a discount more than this
percentage with prior approval of the manager only. Brendan, CIO of Poolworths Ltd. had
reason to believe that George was duly appointed and had the authority to provide a discount as
almost every other salesman often provides a discount. As the conduct of George was related to
his work profile, Brendan had reason to believe that George was acting in given authority.
Here the issue of the case has started when George offered a 15% discount to Brendan going
outside of the provided authority. In general, Brendan could take the assumption under section
129 of the act as he could not check the true authority level of George. Nevertheless, in this
situation, provisions of section 128 (4) and the case of Northside Developments Pty Ltd v
Registrar-General seems to held applicable. One of the colleagues of Brendan discussed with
him that there must be certain issues with the authority of George as the discount is very huge
and abnormal. Here due to the nature of the transaction, it was liability of Brendan to check the
authority of George. He could not do so. It means he could suspect that George had no authority
to enter into a transaction offering a 15% discount. As Brendan cannot take the assumption under

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indoor management rule then, the Golden Gate Technologies (GGT) Ltd does not seem to held
liable.
Conclusion
In a conclusive way, this is to state that Poolworths Ltd cannot sue Golden Gate Technologies
(GGT) Ltd for breach of contract and cannot ask this company to accept the deal.

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References
Asic.gov.au. (2019) Steps to register a company. https://asic.gov.au/for-business/registering-a-
company/steps-to-register-a-company/#understand-obligations
Connectonline.asic.gov.au. (2019) Check Name Availability.
https://connectonline.asic.gov.au/RegistrySearch/faces/landing/NameAvail.jspx?_adf.ctrl-
state=gyq2kx4up_4
Corporations Act 2001 (Cth)
Legislation.gov.au. (2019) Corporations Act 2001.
https://www.legislation.gov.au/Details/C2018C00424
Lipton, P., and Herzberg, A. (2007) Understanding Company Law. Australia: Thomson Legal &
Regulatory Limited.
Northside Developments Pty Ltd v Registrar-General (1990) 93 ALR 385
Yogaratnam, J., Xynas, L., and Ann O'Connell, A. (2016) Corporations Law: In Principle.
Australia: Thomson Reuters Australia Limited.