Company Law LAW2450 - Topic Notes - Topic 1 PDF

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lecture notes for the first topic of the semester...

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COMPANY LAW LAW2450 TOPIC NOTES

TOPIC 1: Introduction to Company Law

Topic 1: Introduction to Company Law 1

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Contents Topic 1: Introduction to Company Law 2

Learning Outcomes 1. Introduction 2. Defining main types of legal structure for business in Australia a. Company b. Sole trader c. Partnership d. Joint venture e. Trust 3. Corporations a. Proprietary Companies b. Public Companies 4. Separate Legal Entity / Corporate Veil

Learning Outcomes •

Understand how to determine the correct structure for a client

•

Understand why a company is the appropriate structure

•

Understand the types of companies available in Australia

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Understand the legal consequences of incorporating a company

Readings Topic 1 Modules 1 & 2 of the Highly Recommended Text

Topic 1: Introduction to Company Law 3

1. Introduction This week we will first look broadly at the operation of organizational structures in the social sphere, and analyze the way those organizations are treated at law. Most importantly, this topic introduces the organizational structure called the ‘company’, and the main legal organisations that we will consider in this course. The legally recognized organisations on which we will focus in the introductory component of this subject include the sole proprietor, unincorporated associations, incorporated associations, partnerships, trusts and, corporations.

2. Business Structures a. Company The company is the most common business structure for organisations in Australia. A company or corporation is a separate legal entity formed under the Corporations Act 2001 (Cth). As a separate legal entity, a company can enter in contracts, sue and be sued in its own name. Further details about a company can be found on page 7 of the Text Book

b. Sole Trader A sole trader or sole proprietorship is a business that is owned by one person and that has no legal existence separate from that person. Because the business has no separate legal existence from its owner, a sole trader is personally responsible for the debt of the business. Further details about sole trader can be found on pages 6-7 of the Text Book.

c. Partnership A partnership is a relationship or association between two or more entities, carrying on a business in common with a view to making a profit. Each partner in a partnership is personally liable for all the debts of the partnership, even in they are caused by decision or acts by other partners.

Topic 1: Introduction to Company Law 4

Further details about partnership can be found on pages 6, 10 - 17 of the Text Book.

d. Joint Venture A joint venture is another way to structure a business involving multiple people, particularly where two or more people or parties come together in business. The parties are only responsible for their respective obligations, not for the obligation of any of their joint venture partners. Further details about joint venture can be found on pages 6, 18 -23 of the Text Book.

e. Trust A trust is referred to in this course as a legal organisation because it involves an arrangement of things and people; however, it does not mean that a trust is recognised at law as an organisation. A trust is relationship or association between two or more parties, whereby one party holds property in trust for the other. The parties to an express trust are the settlor, the trustee and the beneficiary. Further details about trusts can be found on pages 6, 20-28 of the Text Book.

3. Corporations The Corporations Act governs the registration and use of different types of companies, classified by reference to the basis and the extent of the members’ liability and according to whether they are public companies or proprietary companies. In this course we will use The Corporations Act as tool of reference as we look at topics such as directors’ duties & liabilities, shareholders’ rights & remedies,

financial

reporting provisions; and requirements for company meetings in more detail.

a. Proprietary Company Under section 113 of the Corporations Act, a Proprietary Company (also known as Private Company) is a company with no more than 50 non-employee members. Proprietary companies can be small or large, depending on the amount of revenue they make, how many assets they hold, and how many employees they have. See section 45A of the Corporations Act and pages 44-45 of the Text Book for more Topic 1: Introduction to Company Law 5

details.

b. Public Companies Under section 9 of the Corporations Ac, a public company is a company is a company that has more than 50 non-employee shareholders and engages in public fundraisings. For a public company to engage in public fund raising it must be listed on the Australian Securities Exchange (ASX). See section 113 Corporations Act for more details. Public Companies can be categorized by their listing status; listed or unlisted. A listed company is a public company that participates on a public securities exchange such as ASX, where as an unlisted company is a public company that does not participate on a public securities exchange. The main classes of a public company are: companies limited by shares, companies limited by guarantee, unlimited companies and no liability companies. See section 112 of the Corporations Act and pages 47 – 49 of the Text Book for more details. 3. The ‘Separate Legal Entity’ concept & the Corporate Veil A company, once registered, is a separate legal entity, distinct from its members and those that manage its operations. A company can: 

incur debts in its own name;



holds property, and undertake; and



sue and be sued.

See section 119 of the Corporations Act for further details. The legal principle of the corporate veil comes from the case Salomon v Salomon & Co Ltd [1897] AC 22, the leading case on the establishment of the doctrine of separate legal personality. The corporate veil concept is an expression used to describe the legal rules that keep participants separate from the company in a legal sense. In essence it means that no-one can claim that the company’s obligations, liabilities, rights or property are the participants.

Topic 1: Introduction to Company Law 6

However, there are a few circumstances where the law will ‘lift the corporate veil’. Under the Corporations Act, this mainly occurs where there are dealings between a director and the company and the director attempts to get a benefit over a third party or creditor. Other statutes (e.g. Tax, OHS, Fair Work) will operate to hold directors personally liable in certain situations.

A related concept to the company being a separate legal entity is that members of ‘limited’ companies have limited liability. This means that Liability is limited to the amount of any unpaid share capital or guarantees given. Members are legally responsible for the debts of a company only to the extent of the unpaid amount on the nominal value of their shares. See section 516 of the Corporations Act for further details.

Another related concept to the company being a separate legal entity is that contracts entered into before the company was registered (called ‘pre-incorporation contracts’) require further steps to be taken for the company to be bound by those contracts. See sections 131-133 of the Corporations Act for further details.

Topic 1: Introduction to Company Law 7...