Busorgs Summary PDF

Preview

Summary

Comprehensive summary of all Business Organisations topics to help you make sense of the corps act....

Description

Business Organisations Summary Partnerships  Partnership Act 1892 (NSW) s 1(1) – “the relationship which exists between persons carrying on business in common with a view of profit” o United Dominions Corporation Ltd v Brian Pty Ltd – “carrying on a business” contains an element of continuity or repetition. o Requirement of profit – net profit of business must be shared  Partnership Act 1892 (NSW) s 2(1) – determining whether a partnership exists 1. Parties characterisation of their relationship  Wiltshire v Kuenzli – intention not to become partners 2. Sharing of net profits  Partnerrship Act 1892 (NSW) s 2(1)(3) – prima facie evidence but does not of itself make him or her a partner in the business 3. Sharing of losses  Partnership Act 1892 (NSW) s 24(1)(1) – equal contribution to losses 4. Status of Principal  Cox v Hickman – “every partner in trade is an agent of his co-partners” 5. Management participation 6. Mutual trust and confidence 7. Contribution to capital  Characteristics of a Partnership o Absence of distinct entity status for the partnership o Unlimited liability of partners  Partnership Act 1892 (NSW) ss 28-30 – fiduciary obligations of partners  Limited liability Partnerships o General partners – have the right to share in the management of partnership o Limited partners – contribute capital and share profits but no managerial rights Business Entities  Unincorporated Associations – not for profit o Corporations Act s 115 – limited to 20 members (except for professions) o Wise v Perpetual Trustee Co Ltd – “they are not associations for gain” o Issue with extent of personal liabilities of members of the committee of the unincorporated association in whom the constitution of the association typically vests responsibility for management of group affairs  Non Profit Associations – do not distribute profits (must have a not for profit statement) o Activities having chartiable objects o Educational and scientific activities o Activities of a sporting, social or cultural nature o Activities intended to further professional or trade interests (Eg… Law Societies) o Activities carried out for the mutual benefit of members  Trusts – between 3 people o The trustee has limited liability and the corporation acting on its behalf must act in the best interests of the trustee  Unincorporated Joint Ventures – one off relationship with no limit on liability  The Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) – special form of incorporation for Aboriginal and Torres Strait Islander peoples  Sole Trader  Co-Operative – limited liability or members and  Incorporated Associations – more members and benefit of limited liability  Factors affecting decision to incorporate – Limited liability, perpetual succession, float of shares, ability to obtain financing, regulatory costs, double taxation issues Incorporation  Corporations Act s 117(2) – ASIC incorporates a company following an application under this o Type of company to be registered o Proposed name (reserve prior to incorporation under s 152)

Business Organisations Summary Name and address of members, directors or secretaries (need only one person as director and secretary, ss 114 & 201F) o Proposed registered office, share capital and guarantee obligations Corporations Act s 1274(7A) – company certificate of incorporation is conclusive evidence that all requirements for incorporations have been complied with Bowman v Secular Society Ltd – if a company is registered fraudulently it is not cured by the fact it is registered with ASIC and ASIC reserves the right to wind a business up if it breaches this (Bowman v Secular Society Ltd) Types of Companies under the Corporations Act s 112(1) o Proprietary companies – limited by shares, unlimited with share capital o Public companies – limited by shares, limited by guarantee, unlimited with share capital and no liability company Companies limited by share o Liability is limited by share o Fully paid shares – shares for which the value has been fully paid (when a company becomes insolvent, shareholder will not be liable for debt) o Part paid shares – shares that have not been fully paid for (when a company becomes insolvent, owner of partly paid shares is liable for the amount owing on the shares (s 516). Companies limited by guarantee – could be some tax advantages o S 9 – “formed on the principle of having the liability of its members limited to the respective amounts that the members undertake to contribute to the property of the company if its wound up” Unlimited Company No Liability Company – must have NL at the end of the name o Company can be registered as no liability company if  The company has a share capital  Company’s constitution states that its sole objects are mining purposes (s 9)  Company constitution makes no right to recover calls made on its shares from a shareholder who fails to pay them (s 112(2)) o Special rules apply to No Liability Companies Proprietary vs. Public Company o Proprietary companies require one member and cannot exceed 50 members o Proprietary company may issue shares to existing shareholders and employees o Requirement to hold an annual general meeting applies only to public companies (s 250N) o Proprietary company can pass shareholder resolutions without holding a meeting (2 249A) o No auditing requirement for proprietary companies Corporate Constitution – company contract deals with the following o Division of powers between board of directors and general meeting of shareholders o Proceedings of the board and general meetings o Appointment and remuneration of directors o Declaration of dividends, transfer and transmission of share s o Winding up of the company Corporations Act s 135 – Replaceable rules for proprietary and mandatory rules for public o Companies may function without a constitution and rely on replaceable rules o Company may adopt constitution to modify or displace replaceable rules o Company may retain constitution to the exclusion of replaceable rules if it was incorporated prior to 1 July 1998 Corporations Act s 136(1)-(2) – Special resolution is needed to adopt or vary a company constitution (more than 75% of members) o

  





 









Corporate Personality  The corporation – artificial legal construction o The concepts of separate legal status and limited liability are two distinct but separate features of the corporation  Limited liability o Advantages of limited liability

Business Organisations Summary  

  







Encourages investment by those who have no interest in managerial participation Relievers shareholders from the burden of monitoring the capacity of others to contribute proportionately to company failure  Corporations may engage in riskier projects o Disadvantages of limited liability  Corporations may engage in riskier projects  Benefits to shareholders are matched by risk to creditors  Can be used as a shield to protect against wrong doings Corporate Personality Corporations Act s 124 – ensures corporations enjoy perpetual succession Salomon v Salomon & Co Ltd o Mr. Salomon was held by the initial High Court judge to have created the company solely to transfer his business to it and the company was his agent and he as principal was personally liable for debts to unsecured creditors o House of Lords overturned this decision, rejecting the arguments regarding agency and fraud. It was held that the company was not an agent of Salomon and it was a separate legal entity. Lee v Lee’s Air Farming Ltd o Mr Lee died in a work accident and Mr Lee’s wife claimed on worker’s compensation insurance o Insurer denied liability on the ground that Mr Lee could not be a servant because he was a director of the company o Judicial Committee of the Privy council upheld the claims made by Mrs Lee and it was noted “the capacity of the respondent company to make a contract could not be impugned merely because the deceased was an agent of the respondent company in its negotiation” Piercing the Corporate Veil – Fraud and Improper Conduct o Gilford Motor Co Ltd v Horne  In this case it was clear the main purpose of incorporating the new company in his wife’s name was to perpetrate fraud and the Court regarded it as a mere shame to cloak his wrongdoings. o Jones v Lipman  To avoid specific performance to sell his company Lipman transferred his property to a company. Reference to above case and affirmed that the company was “a mask which Mr Lipman holds before his face in an attempt to avoid recognition by the eye of equity” Piercing the Corporate Veil – Agency Smith Stone and Knight Ltd v Birmingham Corporation  SSK owned BW and government claimed land back but SSK claimed loss would fall on them and the issue was whether SSK could claim compensation in this way. BW was deemed an agent as they satisfied the below  Were the profits treated as the profits of the principal?  Were the persons conducting the business appointed by the principal?  Was the principal the head and the brain of the trading venture?  Did the principal govern the adventure, decide what should be done and what capital should be embarked on the venture?  Did the principal make the profits by its skill/ direction?  Was the principal in effectual and constant control of the agent? o Re FG (Films) Ltd  Held that the company designed to finance the facilities to make the film was a sham. Applicant was prohibited from enjoying the benefits given by British government as the film was not made by the company themselves. Piercing the Corporate Veil – Corporate Personality within Corporate Groups o Briggs v James Hardie & Co Pty Ltd  James Hardie sold off the companies with the asbestos liability to another company known as the Medical Research and Compensation Fund. o



Business Organisations Summary 

Sufferers of asbestosis sought to pierce the corporate veil but the veil was not pierced because the Court and ASIC were implicated in the sle of the liable companies

Governing Factors  Corporate Governance and the Moral Hazard in Shareholder-Manager relations o Corporate governance can be seen as the inherent conflict of interest and preference between company management and shareholders o Many legal, market and social forces seek to align the interests of managers and shareholders:  Imposition of legal duties upon directors and managers  Shareholder voting rights  Shareholder litigation rights  System for reporting and verification of corporate financial information  Design of executive compensation packages to provide performance incentives  Oversight and enforcement of regulatory agencies  Measures affecting board composition, structure and functioning  The Board of Directors o Principal powers of the corporation are vested in the board either through provisions in their constitution or under replaceable rules that state the business of a company is to be managed by or under the direction of the directors o Maces influential analysis of directors in large and medium sized corporations found  They provided a source of advice and counsel to management  Discipline of periodic appearances before the board served to protect against unconscionable executive remuneration policies  Directors served as decision-making bodies in crisis situations  The Personnel of Company Management o Corporations Act s 201A – minimum number of directors (3 – Public, 1 – Private) o Corporations Act s 204A(2) – public company must have one secretary a resident of Australia  204B – individual must be over 18 years to be appointed secretary  204D – Secretary is to be appointed by the directors  The Distribution of Corporate Powers between Shareholders and Directors o 198A(2) – Directors may exercise all powers of company except any powers the Act or the company’s constitution requires the company to exercise in general meeting o 157 – Altering the company’s name requires special resolution by general meeting o 136 – Modification of company constitution must be done by special resolution o 162 – Alteration of company type must be done by special resolution o 254H – Conversion of any shares into a larger or smaller number of shares must be done by ordinary resolution o 491 – By special resolution, the company may be wound up voluntarily o 461(1)a – Special resolution may require that the company be wound up by the court o 208(1)a – Requires shareholder approval to give a financial benefit to a related party o 200B – 200C – Requires shareholder approval in determining directors retirement benefits o 250R(2)-(3) – Requires that a remuneration report must be adopted by resolution  Directors Independence in the Exercise of their Powers o Corporations Act s 198A(2) – replaceable rule creates provisions conferring upon the board all such powers as are not, by the Act or by these regulations, required to be exercised by the company in general meeting o The degree of independence from shareholders enjoyed by directors, therefore, depends on the terms in which the powers are expressed in the company’s constitution or replaceable rules applicable to it. o Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame – at general meeting, resolution was passed that the company sell its assets and the directors should affix the company’s common seal to the agreement. The resolution passed by the shareholders in regards to the sale of assets was invalid because it was found the articles in the constitution provided for a director to be removed only by special resolution.

Business Organisations Summary 

 









Residual powers of the general meeting o Barron v Potter; Foster v Foster – Where there is a deadlock upon the board, there is authority that the general meeting may fill the void and by ordinary resolution exercise management powers. o Featherstone v Cooke; Trade Auxiliary Co v Vickers; Steinfield v Gibbons – injunctive relief and the appointment of a receiver may be granted to restore management to a proper footing where, owing to disputes among directors, they are unable to act. Commencement of litigation on behalf of the company falls within the powers of management but it still seems to be the law that the general meeting can commence proceedings on behalf of the company if the directors fail to do so. Appointing and Removing Directors o 201B(1) – only an individual over 18 can be a director o 198C – directors may appoint one or more of their number to the office of managing director o 201K(1) – director may, with the approval of other directors, appoint an alternate director to exercise some or all of the directors duties for a specified period o 120 – first directors are appointed by naming them in the application to register the company o 201G – Directors may be appointed by the company in general meeting o 201H – directors may be appointed by the directors themselves o 201H(2)-(3) – general meeting must confirm the appointment of a director by the directors within two months for a proprietary company or at the annual general meeting for a public company Shareholder rights to remove directors o 203C – shareholders of a proprietary company by resolution may remove a director from office and appoint another person as a director instead o 203D – Shareholder of a public company by resolution can remove a director from office despite anything in the company constitution, an agreement between the company and director and an agreement between any or all members of the company and director Disqualification from Directorship o 206A – defines disqualification (from participation on decision making) o 206B(3)-(4) – disqualifies an individual from being a director if they are bankrupt o 206B – if they have committed an offence under one or more categories involving decisions that affect a substantial part of the company’s business or its financial standing, an offence involving dishonesty or an offence punishable by imprisonment for at least 12 months o 206B(2) – automatic disqualification is for 5 years o 206G – Court may grant leave within this period o 206BA – ASIC may apply to have the disqualification extended to 15 years o The Court will have discretionary power:  Disqualification for repeated contraventions of the Corporations Act  Disqualification where directors have been involved in the management of a company that has failed (up to 20 years) if:  Officer of two or more companies that have failed within last 7 years  Manner in which companies were managed is partially responsible  Is it justified by the level of management by that person (206D(1)) ASIC v Adler – Adler was a non-executive director of HIH and was also a director of Adler Corp. ASIC sought declarations against Adler for contraventions of ss 180-183 and s 206A o Santow J – “findings indicate… he did so with knowledge of the impropriety of his conduct and for the purpose of advancing his own personal interests’ o Adler argued almost all his business interest are carried through AdlerCorp to which him and his wife are the only directors and shareholders and it was his main source of income o Santow J disqualified Mr Adler for 20 years. Functioning of the Board of Directors o 248C requires directors to convene director’s meetings by giving reasonable notice to every other director o 248E – each meeting must be chaired by a member of the board o 248F – unless otherwise decided, quorum for a directors meeting is two directors who must be present at all times during the meeting

Business Organisations Summary o o o o

248G – resolution of the directors must be passed by a majority of votes 248D – directors meting may be held using technology 251A(1) – minutes of the meeting must be recorded and signed by the chairman of the meeting 1322 – allows courts to draw upon ordinarily protected minutes to clarify irregularities

Contractual Issues  Authority of Corporate Agents to Bind the Company o 126 – allows a person to bind the company acting under its express or implied authority o Contractor must satisfy themselves of the authority of the agent through  The doctrine of actual authority  The doctrine of ostensible authority  The indoor management rule  129(3) – assumption of authority to act on behalf of the company  Actual authority – this authority may be express or implied. o Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (Diplock) – “actual authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. To this agreement, the contractor is a stranger, he may be totally ignorant of the existence of any authority on the part of the agent but it still creates contractual rights and liabilities between the principal and contractor.” o Crabtree-Vickers Pty Ltd v Australia Direct Mail Advertising and Addressing Co Pty Ltd – Peter had no actual authority to make a contract on behalf of ADMA because he was bankrupt. No one alone, out of the brothers had authority to decide without consulting the father. o Royal British Bank v Turquand – parties dealing with companies are bound to read the statute and the deed of settlement but are bound to do nothing more. Parties dealing with a company are not to be affected by irregularities which take place in internal management of the company.  129 allows a person dealing with a company to assume: o Compliance with the company’s constitution o ASIC’s records of authority appointment to directors and secretaries are correct o Authority of those held out by the company are officer’s or agents o Company officers and agents have properly performed their duties o Execution by the company of documents with or without its common seal o Warranty by company officers and agents that a document is a genuine and true copy  Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd – deed was executed and Occidental knew Furst was not the secretary according to ASICs records but B&P assured that he had been recently appointed. It was held that the holding out of Furst as t...