Corporations Law Assignment: Company Law, Incorporation, and Issues

This report addresses key aspects of Corporations Law, starting with a scenario involving three sisters inheriting an accounting firm and seeking to expand. The report analyzes company structures, including their advantages and disadvantages, and contrasts them with other business structures like sole trader, partnership, and trust. It outlines the seven steps for incorporating a company as regulated by ASIC, and differentiates between public and proprietary companies, including definitions of small and large proprietary companies. The report then addresses a second scenario involving an employee subject to a restraint of trade clause and the liabilities of company directors. Relevant sections of the Corporations Act 2001 (Cth) are applied, including those related to directors' duties, insolvent trading, and the power of the courts to grant injunctions. The analysis concludes that a company is a separate legal entity and has the power to sue, and the bank should sue the company instead of the director.

Running head: CORPORATION LAW
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CORPORATION LAW
Name of the student:
Name of the University:
Author’s note:

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Question 1
Introduction
In the given scenario, three sisters have been inherited an accounting firm. After success
in their business, they want to expand that. This answer is discussed about the company
structure, its functions, advantages and disadvantages, incorporation of a company, differences
between public and proprietary companies.
Company structure and how does it work
A company is a separate legal personality and a business structure, which may be
designed by an individual or a group of persons to operate industrial or commercial activities. It
may be structured in several ways for financial liability or tax purposes depends on the company
law of its jurisdiction. It is different from a partnership firm or sole trader.
A company has possessed several legal rights and duties as an individual possess. For
example, the right to sue or to be sued, entering into the contracts with other companies or
individuals, paying taxes, borrowing money, possess assets, hiring employees in its name and
many others (Yogaratnam and Xynas 2020).
Advantages and disadvantages of a company structure
The advantages of a company structure are discussed here. Firstly, the company can able
to arrange the legal activities in its name and not in director or manager’s name. Secondly, the
shareholders of a company possess such limited liability; that is, they are not liable for the
company’s debt. Thirdly, the business structure of the company will remain to continue even in
the disability or death of the company’s key person (Yogaratnam and Xynas, 2020).

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The disadvantages of a company are that it is more systematic than other commercial
structures. The rules and regulations, which have been established to run the company, are more
costly and complicated than others. The directors may be legally responsible for the company’s
dues if they fail to come across their legal duties. The profits, which have been distributed by the
company to its shareholders, are taxable.
Other business structures in Australia
There are another three business structures other than company structure in Australia.
These are Sole trader, Partnership structure and Trust. In a sole trader, business structure the
owner of the business is legally responsible for all part of his business, which includes debts,
damages and regular business transactions. A partnership business is a business structure, which
has been made by two or more individuals who have to distribute the income or losses of that
business among themselves. There are three types of the partnership business, such as general
partnership (GP), limited partnership (LP) and incorporated limited partnership (ILP). A trust is
also a business structure where an obligation has im0posed on a trustee to hold an asset or
property for some benefits of the beneficiaries. If any person wants to operate his business as a
trust, then the trustee will be legally responsible for such operations. A company can be a trustee
of that trust and can able to provide asset protection (Asic.gov.au 2020).
Seven steps for incorporation of a company by ASIC
The Australian Securities and Investment Commission (ASIC) has regulated the
incorporation process of a company. It has provided 7 steps for incorporating the company.
These seven steps are discussed here. Firstly, one has to decide whether a company is right for
him or not. Secondly, he has to choose a name for the company and that name should not be
identical with an existing name of any company. Thirdly, he has to decide how the company will

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be operated, whether by replaceable rules or by its own constitution or both. Fourthly, if he is an
officeholder of his company, then he has to understand his obligations and requirements in the
Corporation Act, 2001 (Cth). Fifthly, he has to get written consent of the Directors, Secretaries,
and members. Sixthly, he has to register his company using Business Registration Service of the
government of Australia or through a Private Service Provider online. Lastly, registering the
company, he should make sure that the company is open for the public, the ACN or ABN of the
company should be displayed in the company’s documents, and the details of the company
should be up to date (Asic.gov.au 2020).
Differences between Public and proprietary company
The main differences between proprietary and public company are discussed here. The
Corporation Act 2001(Cth) describes the definitions and categorises them following their
liabilities and members. The public company has referred to four types such as limited by share,
limited by guarantee, share capital and no liability company, whereas the private company has
referred two types of it, such as limited by shares and the unlimited share capital. There are other
differences as, in the proprietary company, the numbers of non-employee shareholders should
not exceed 50; on the other hand, there is no limitation in the private company. The proprietary
companies follow very few rules and regulations more than public companies. In public
companies, there is unlimited membership; therefore, they have greater access to funding from
society than the proprietary company.
Definition of the public company, small and large proprietary company
A public company is a company whose proprietorship is structured through the stoke
shares which intends to be openly traded in the market as well as in the stoke exchange. Section
45A of the Corporations Act 2001 (Cth) has dealt with the proprietary company. According to

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this section, a company who is registered or converted as a proprietary company in this Act are
called a proprietary company. Section 45A (2) of this Act deals with the small proprietary
company. According to this section, in a financial year, a proprietary company can be called a
small proprietary company if it has satisfied at least two requirements of this section. The
requirements are discussed here. Firstly, such consolidated revenue of a financial year is not
more than $25 million or the prescribed amount; secondly, the consolidated gross assets in a
financial year is not more than $12.5 million or specified amount; and lastly, the company has
maintained less than 50 employees in a financial year. Section 45A (3) of this Act describes the
large proprietary company as the vice-versa of the small proprietary company, as there should be
a consolidated revenue more than $25 million, or the consolidated gross assets are more than
$12.5 million or the company has more than 50 employees.
Registration of Business name
In the ASIC website, the name “Donald Accounting” is not available. Therefore, they can
register this name in the website of Australian Business And Company Registration mentioning
the business name, registration period, Australian Business Number (ABN) details (asic.gov.au
2020).
Question 2
Issues
 The issues involved in this case whether an employee has to cease her employment in
from a business if she has signed in restraint of trade clause.

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 It is also involved in this issue whether a managing director or an operation manager is
personally liable for the default amount in a company or not.
Laws
In this scenario, 124, 140 (1), 181, 588G, 1324 of the Corporation Act 2001 (Cth) will
apply to advise for Dorothy and Cecil in their legal issues.
Section 124 of the Corporations Act 2001 (Cth) describes that a company has possessed
power and the legal capacity as an individual possess. In the decision of the case, Salomon vs
Salomon 1896, the above statement has also stated here.
Section 140 (1) of this Act has laid down that each member, director, secretary are bound
by the contractual relationship, which has been constituted with the company and them.
Section 181 of this Act lays down that the directors, as well as other officers in a
company, should implement their authority and discharge their responsibilities in good faith
aimed at the best interest of that company and for an appropriate purpose of using it.
Section 588G of this Act lays down that the directors have possessed a duty to prevent
the insolvent trading by the company.
Section 1324 of the Corporations Act 2001(Cth) has given the power to the courts for
granting injunctions to preclude such breaches or to order for compensations or damages. The
decision of the Supreme Court of Victoria in the case Freedom Finance Accounting Pty Ltd vs
Goldstein 2017 will apply to decide this given case.

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Application
In the case, Dorothy has possessed a senior executive in a company namely Super Cheap
Supermarket, which operates in Victoria and South Australia. In the contract of employment,
there is a restraint of trade clause, which has stated that after cessation of her employment, she is
not allowed to work in a similar industry for a prescribed year. Dorothy has ceased her
employment and started the same business. She has selected Cecil as managing director, and on
behalf of the company Cecil has signed in a contract for an unsecured loan of $300,000 from the
Business Bank. However, the company has defaulted to repay the loan instalment of $90,000. In
such circumstances, the Bank has sent a notice to Cecil and Dorothy regarding the default of the
loan amount and has threatened them to sue them personally. Dorothy has also received a notice
from her previous company to cease the operation of her new company.
Assuming the restraint of trade clause in the contract paper, which Dorothy has signed
with the Super Cheap Supermarket is valid under the law, then it is her duty to obey that clause.
Applying the judgment of the case of Salomon vs Salomon 1896, every company has possessed
a separate legal entity, which is exclusively distinct from the members of its business. The
company has the power to sue and to be sued.
Applying section 124 of the Corporations Act 2001(Cth) in this given case, it can be said
that a company has power and the legal capacity as an individual possess. Therefore, the Super
Cheap Company has the ability to sue Dorothy as she has breached the contract, which has
restrained her from making any trade in its jurisdiction.
Applying section 140(1) of the Act in the given case, this can be expected that every
member, director, secretary are bound by the contractual relationship, which has been constituted

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with the company and them. In the case law, Freedom Finance Accounting Pty Ltd Vs
Goldstein 2017 the Supreme Court of Victoria has demonstrated the significance of a draft of the
unambiguous and brief clause to restrain from trade in the commercial agreements or contracts.
In the Common law doctrine of Australia, the aggrieved party has to show the restraint clause in
the agreement paper from restraining the defendant’s capability to involve in trade or
engagement.
Applying section 181 of the Corporations Act 2001 (Cth), this can be presumed that the
good faith is a civil obligation of the directors and the other officers in a company. According to
this section of this Act, the directors or the other officers in a company should implement their
authority and discharge their responsibilities in good faith aimed at the best interest of that
company and for an appropriate purpose of using it. Cecil is responsible for the business conduct
of his company.
Section 588G of this Act lays down that the directors have possessed a duty to prevent
the insolvent trading by the company. Therefore, Dorothy and Cecil have a responsibility to
avoid the insolvent trading by Really Expensive Groceries Pty Ltd.
Applying the section 1324 of the Act in this scenario, that the court has the power for
granting injunctions to preclude such breaches or to order for compensations or damages. As the
company is a separate legal entity, then the bank should sue the company and not the Managing
director or the operations manager.
Conclusion
Therefore, it can be concluded in the above scenario that as the company is a separate
legal entity as an individual, then it has the power to sue an individual for breach of contract. The

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court of law may issue an order of injunction on her business of Really Expensive Groceries Pty
Ltd or may give an order for damages or compensations.
It can be further concluded that though the Business Bank has issued an unsecured loan
to the company, it is a responsibility of every borrower to repay the loan amount as they have
agreed. It will reflect a wrong impression on the company’s credit score. However, the Bank
cannot attach the officers’ personal property or hold them personally liable. Therefore, The
Business bank has the power to sue the company itself and not the offices.

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References
Asic.gov.au (2020). For business | ASIC - Australian Securities and Investments Commission.
[online] Asic.gov.au. Available at: https://asic.gov.au/for-business/ Retrieved on 19 Jan. 2020.
asic.gov.au (2020). Registering a business name | ASIC - Australian Securities and Investments
Commission. [online] Asic.gov.au. Available at: https://asic.gov.au/for-business/registering-a-
business-name/ Retrieved on 19 Jan. 2020
asic.gov.au (2020). Registering a company | ASIC - Australian Securities and Investments
Commission. [online] Asic.gov.au. Available at: https://asic.gov.au/for-business/registering-a-
company/ Retrieved on 19 Jan. 2020
Freedom Finance Accounting Pty Ltd v Goldstein [2017] VSC 179
Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22
The Corporations Act 2001 (Cth)
Yogaratnam and Xynas (2020). Corporations law: in principle / Jeswynn Yogaratnam, Lidia
Xynas. - Version details. [online] Trove. Available at: https://trove.nla.gov.au/work/211599519?
q&versionId=232376425 Retrieved on 19 Jan. 2020.