The Corporations Act 2001 - Assignment Example

COMPANY LAW Name Course Date of Submission Company Law The corporate act outlines laws that govern the formation and operation of different forms of business including partnership, trusts, incorporated associations, co-operatives, and companies1. As such, formation and operation of either of these businesses must meet a set of requirements outlined under the law. Partnership arrangements are not recognized as separate legal entities and the partners remain jointly liable for the undertakings and obligations of the partnerships2. However, a limited partnership may be formed in which the nature of liability for each partner in the business is stipulated at the time of registering the partnership. The law further allows formation of two types of companies namely, a public and a proprietary limited company. The formation of a public company requires at least three directors and a company secretary whereas the constitution of a proprietary company requires at least one director3. On the other hand, co-operatives are associations run as business and can assume different forms including trading co-operatives, non-trading, and financial services co-operatives. Trusts are recognized as trust declarations and terms of trusts expressed in a written which significant monitoring by independent agencies. Laws Relevant To the Scenario Review of the Corporations Act 2001, which outlines the requirement for the formation of the different business, is crucial in understanding the kind of business Susan and Rebecca can establish. The two have the option of establishing a partnership, a limited proprietary company, or a public company. For proprietary company, the Corporations law act requires the number of members to be limited to not more than fifty4. In addition, the law prohibits owners or members from inviting the public to subscribe to shares or to deposit money with the company. As such, the law limits the means that can be utilized to finance the company’s business activities. The law also does not recognize the proprietary as a different entity from the owner. Section 45 A of the Corporations Act requires parties establishing a large proprietary company to satisfy certain criteria including not more than fifty members, consolidated Gross Assets of > $12.5M p.a , and consolidated revenue of > $25M p.a5. The act further requires this form of company to lodge audited accounts with the Australian Securities and Investment Commission (ASIC) in every financial. Susan and Rebecca also have the option of constituting a public limited company which refers to any other form of company in which the public own the company by way of purchasing shares. This form of company can be listed in the Australian Stock Exchange upon fulfillment of the Australian Stock Exchange and National Guarantee Fund Act requirements. However, these requirements are additional to the provisions of the Corporation laws. Public companies must have at least three directors and with two of them citizens of the states6. The Corporations law Act further mandates public companies to have a company secretary, a public officer, and at least one shareholder. Nevertheless, the law does not stipulate any minimum share capital for either a proprietary or a public company. Application of the Laws The recommended Susan and Rebecca form of business, which they use to undertake their business is a limited proprietary company as informed by their proposed constitution. Constitution of a proprietary company limited by shares requires at least two directors a requirement that they can fulfill by including themselves as the directors of the company in the company’s constitution7. Formation of a public limited company in their case is limited the fact that the law requires at least three directors, company secretary, a public officer and at least one shareholder. Registration of a company provides several benefits including the ability to raise significant capital from up to 50-non employee shareholders8. In this case, Rebecca and Susan can raise the remaining capital $ 1.3 million to purchase equipment and set up the business by not necessarily selling shares to the public but by offering shares to at least 50 potential investor non-employee shareholders. A company as separate entity under the Corporations Act has special power such as the ability own and dispose assets , sue and be sued as well as enter into contracts, specifically established to protect the interest of other shareholders other than the directors9. In addition, this a proprietary company provides significant protection to Susan and Rabecca because of its separate legal recognition which allocate it different liability from the owners including tax liability and other risks that may be incurred in the process of operating the business. Proprietary limited company limited by shares is much better because, the liability for debts incurred is distributed to all shareholders based on the number of shares that they have10. Although, a constitution of a public company may have provided a greater source of capital from the sale of shares to the public, it require a high minimal capital among other legal obligations compared to a proprietary company in which the start up capital is determined by the intended venture. In conclusion, a proprietary company limited by shares provided the best form business that Susan and Rebecca can use to conduct their business. A limited proprietary company has easily attainable requirements under the Corporation Act, which will enable them to retain significant control of the business as the directors/owners of the business idea. In addition, they would have an opportunity to raise the remaining start-up capital from at least 50 shareholders, have their the liability to the company debt distributed to the shareholders. Their proposed constitution provisions to guide their operations are perfectly supported by the provisions of the Corporations Act. Question Two (i) Susan and Rebecca will remain directors of the company until they decide to resign as directors Section 203A of the Corporations Act provides that a director in either a proprietary company or public company may resign from the position of the company if they so wish.11 This should be presented in form of a written notice to the registered office of the company. Section 203B provides special circumstances under which a direct may cease from holding the position of a director in form of disqualification12. However, Section 203C provides that members of a company can elect to remove a director of a proprietary company through a resolution by members to remove a director from office as well as replace a director by appointing another person to take up that role13. In this case, this provision in Susan and Rebecca company’s constitution contravenes the provisions of the Corporations Act which eliminates the perception that directors could be immune to dismal following gross misconduct or abuse of office. As such, the company’s constitutional provision on the tenure of the directors should be revised to recognize that other than resignation, the Corporation Act provide other circumstances under which they can cease to hold the office of the director. As such, revision of this constitutional provision should refer to the sections 203B and 203C to ensure that the provision respects the Corporations Act provisions. Implementation of this constitutional rule may have adverse effects on the reputation of the company before shareholder because it implies that the directors would remain in office even with evidence for gross misconduct or abuse of office. In conclusion, the provision is inappropriate or invalid and requires revision because the Corporation Act would take precedence in situations where the State constitutional appearance to be breached. (ii) The agreement of all members is required to change the company’s business from mining zodiac minerals and the manufacture and marketing of wrinkle free fabric This constitutional rule is valid because neither does the Corporation Act nor the does the common law provide a standard model for sharing power in all companies14. Although certain decisions require the input of the members through a general meeting, the law recognizes the issue of power allocation as a matter that should be agreed upon within the corporation. As such, the Susan and Rebecca remain within the Corporations Act provisions in establishing this rule. Change of business would influence the structure of the corporation and as such, this would require all the members of the corporation to consult15. Non-employees shareholders should significantly influence the decision because withdrawal of their shares would significantly affect the sustainability of the company. Breach of this law would translate into an unconstitutional act and would result into suing of the company by any of the shareholders who feel aggrieved by the decision to change the business. Breach of this provision could result into removal of the directors through a majority rule if they make the decision as provide in Section 203C of the corporation Act or members can also amend the constitution to restrict the decision making process as well as opt out of the venture by way of selling their shares16. As such, the constitutional rule is valid and should be followed in case, the need to change the business arises in future. (iii) The company’s constitution can only be amended if the every member agrees In deed, before a company is registered every member must ratify by consenting to join the investment through approval of the constitutional provisions of the company. The law on the other hand, offers the company an opportunity to change the constitutions or some of the provisions as it may deem necessary but through a resolution17. The resolution to amend sections or specific provision must be arrived by at least 50% of the members. This represents the views and wishes of all members of the company. However, it would be impractical for Rebecca to expect that every member of the company would support what other members are supporting because of individual level opinions and ways of doing things. As it is invalid to say that the constitution can only be amended if very member of the company approves the proposed amendments. Adherence to this would most likely result into a crisis as not all members would support what others have supported hence the need to balance this by introducing the concept of majority vote18. The best approach to amendment is revoking the concept of majority vote in making amendments to the existing company’s constitutional provisions (iv) Bill will be approved as the company’s accountant and will remain the company’s until he decides to resign. As discussed earlier, the Corporations Act offer business owners and stakeholders to establish a constitution, which outlined power sharing from within the company. The Corporation Act does not provide companies with clear standards for removal of a member or an employee from the company but allows companies significant freedom to make such decisions from within the company19. As such, the constitutional rule is invalid because the Corporation a person undermining the trust, reputation or involved in corruption cannot continue to service. In conclusion, the rule is invalid because it does not respect the constitution law. (v) Any contracts over $ 25, 000 required the approval and signature of either Susan or Rebecca. The Corporation Act recognizes the importance of a company to make decisions on the sharing of power within the company. As such, this rule is valid because directors as guarantors are given the power to transact on behalf of the other members. However, the power to enter into a contract is limited to a certain level which has been appreciated in this rule by providing the for the limit amount to which the directors must approve through their signatures20. The company constitution should stipulate the authority of the directors and other employees of the company in which the greatest authority in regards to contracting should be bestowed upon the directors. As such, rule in the company constitution respects the provisions of the Corporation Act and therefore any other authority should recognize any agreement within the constitution. Question Three The Corporation Act requires all transactions or contracting process to follow the due process provided under the company constitution. In this case, Bill breached the company’s constitution which requires approval of all purchases above $ 25, 000 by one of the directors. Bill failed to seek approval for purchase of a new $30,000 accounting package for the company from Ronald. As such, the company is within the constitutional provisions to decline payment for software whose purchase amounts to the breach of the company’s constitution provisions on the due process for contracting. Bill as an agent of the company requires authority from the principle who the company directors and the company constitution requires that the agent obtain an actual express authority when making transactions above $25, 00021. In addition, it is evident that the transaction may have been informed by other interest other than the interest of the shareholders because a former employee, Ronald was involved in the transaction. Although the law appreciates that an outsider has no capacity to know whether the agent has followed the due process for approvals, it is evident that Ronald as once an employee of the company understood what the company’s constitutions provides22. It can be assumed that Ronald as a former employee understood the irregularity in the purchase of the software because he did not get a director’s approval from the agent agreeing on the purchase of the software. However, in case prove is provided to show that Ronald did not understand the irregularity in the transactions, then Ronald can rely on the common law on indoor management rule and the statutory assumptions outlined n the section 128 and 129 to enforce payment for the software by the company23. This would be informed by the assumption that an outsider has no information or obligation to know what the company’s constitution says and therefore would rely on the agents to follow the due process. However, there are exceptions to these assumptions as provided by the Corporations Act in which the law acknowledges that an outsider can have actual knowledge or ought to know about the provisions for the transaction through inquiry24. In this case, these assumptions apply squarely on the case of Ronald because as a former manager he ought to have had knowledge on the due process in entering into such a transaction. In conclusion, the company is within the Corporations Act provisions to decline payment for the software on the basis that the due process for contracting as provided under the company’s constitution was not followed. Ronald can also not enforce the payment of the software through a court of law because there is sufficient evidence that he had full knowledge about the process of contracting followed by the company as a former employee. Bibliography Adams, Michael. Essential Corporate Law: Second Edition. Sydney: Cavendish Australia, 2002. Cassidy, Julie. Concise Corporations Law. Sydney: Federation Press, 2006. CCH Australia Limited. Australian Corporations & Securities Legislation, 2012, Vol 1. Sydney: CCH Australia Limited, 2012. CCH, Australia Limited. Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations. Sydney: CCH Australia Limited, 2011. Company Law for Business 266. Topic 5. Lecture notes. Dagwell, Ron, Wines, Graeme and Lambert, Cecilia. Corporate Accounting in Australia. Sydney: UNSW, 2007. Dransfield, Robert. Business Law Made Easy. London: Nelson Thornes, 2003. Furmston, Michael, Poole, Jill and Tolhurs, GJ. Contract Formation: Law and Practice. Oxford: Oxford University Press, 2010. Gibson, Geoffry. Laws for Directors. London: Federation Press, 2003. Gillies, Peter. Business law. Sydney: Federation Press, 2004. Int’l Business Publications. Australia Company Laws and Regulations Handbook, Volume 1. New York, NY: Int’l Business Publications, 2009. International Monetary Fund. Australia: Mutual Evaluation Report - FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism. Washington, DC: International Monetary Fund, 2012. National Southern Group Pty Ltd, “Doing Business in Australia.” Sothertons Chartered Accounts, 2010, http://www.sothertons.com.au/templates/news_doingbusinessinaustralia.pdf ( Accessed 10/4/14) Tomasic, Roman, Bottomley, Stephen and McQueen, Rob. Corporations Law in Australia. Sydney: Federation Press, 2002. Read More