Corporations Questions & Answers PDF

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QUESTIONS AND ANSWERS TUTORIALS

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Question 1 What law covers the regulations of Corporations in Australia? The law which governs corporations would include all three forms1. Statutory: with the primary legislation regulating Corporations being the Corporations Act 2001 and its regulations, along with ASIC Act 2001 to enforce it. The Corporations Act 2001 (Cth) is an Act of the Commonwealth of Australia which sets out the laws dealing with corporations in Australia at a federal and state level. The Act is the primary basis of Australian corporations’ law and primarily deals with companies but also with other entities, such as partnerships and managed investment schemes, 2. Equity; and 3. Common Law. Question 2 What is 1. Member? The corporation is a distinct legal entity which is separate from those who created it and its members. The people who own a Corporation are its members. A member is one of the company’s owners whose name has been entered on the register of members. Members delegate certain powers to the company’s directors to run the company on their behalf. Section 114 of the Act states a company needs to have at least 1 member. 2. Shareholder? A shareholder is a person who buys and holds shares in a company having a share capital. They become a member once their name is entered on the register of members. Many companies limited by guarantee do not

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have a share capital, and consequently, their members are not shareholders. Shareholders can make decisions about the company by passing a resolution, usually at a meeting. Shareholders of a company are not liable for the company's debts. As shareholders, their only obligation is to pay the company any amount unpaid on their shares if they are called upon to do so. 3. Capital? When a Corporation issues shares it does so for a value, being the issued capital of the company. Capital can be called or uncalled capital. Capital is not always required immediately and not always “called” for. In such a case the Corporation may only call for a fraction of the value of the shares on issue. 4. Loan Capital? Loan capital can also be called borrowed capital and may be obtained from a bank or finance company as a loan, or from debt-equity investors in the form of debentures or preferred stock. The loan capital is usually secured by a fixed and/or floating charge on the company's assets. 5. Share Capital? Share capital is money which members of the company agree to contribute permanently to the company in their capacity as members to fund the joint enterprise or activities. Share capital is a vehicle to allocate certain risks, rights and functions among participants in the business venture, and control the distribution of profits and control of the venture. 6. Share? Shares in the company is a unit interest in the net worth of the business or undertaking of the company. It confers an interest in the company through a bundle or rights to

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participate in the financial distributions made by the company and in group decisions. 7. Partly-paid Share? Partly paid shares in a company are ones in respect of which only a partial payment has been made, and the full issue price does not have to be paid at the time of issue, with the understanding that as the company requires more funds, calls will be made from time to time until the shares are fully paid, when no further calls can be made. 8. Fully-paid Share? Fully paid shares are shares issued for which no more money is required to be paid to the company by shareholders on the value of the shares. These shares can also be called ordinary shares and include standard rights to dividends, the right to vote, the right to a return of capital on winding-up. Others examples can include preference shares which have preferential right over other shareholders, and bonus shares which are issued to existing shareholders without payment. 9. Constitution? The internal working rules of a Corporation are set out in its Constitution. Before the Company Law Review Act 1998 (Cth), companies were required to have a constitution comprised of two documents the: 1. Memorandum of Association; and 2. Articles of Association. In place of the memorandum and articles of association, the Company law Review Act 1998 (Cth) introduced a series of provisions which any company may use to regulate its internal proceedings and management. The Act has a number of sections that are designated: Replaceable Rules. These provisions form the default Constitution of the Corporation. The Replaceable Rules apply to a Corporation as its Constitution unless they are displaced by a “Constitution”: s140 CA. A table of replaceable rules is contained in s141 CA.

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Question 3 Compare and contrast a Chartered Corporation, a Statutory Corporation and the Registered Corporation. Chartered Corporation are incorporated entities established by charter. A chartered company is an association with investors or shareholders and incorporated and granted rights by royal charter (or similar instrument of government) for the purpose of trade, exploration, and colonization. A Corporation can still be created by the executive by means of letters patient or a Royal Charter. An example is the British East India Company. These large enterprises combine business interests with state interests, in that they also regulated foreign trade. While a Chartered Corporation is not created under the Act, it is covered by the Act: ss9 & 57A CA. A Statutory Corporations are public enterprises and are essentially the same thing as a Chartered Corporation, except that instead of creating the corporation by Letters Patent from the Crown, the corporation is created by a special act of Parliament. The Act defines its powers and functions, rules and regulations governing its employees and its relationship with government departments. Examples include Australia Post, and the now private companies Qantas and Telstra. In contrast a Registered Corporation is a company whose name is on the official records of the Registrar of Companies with ASIC after submission of the required statements and compliance disclosure requirements. The Corporation comes into existence on registration, (and not by Charter or Statute) and a certificate is issued. At that point all the formal requirements of the Act must be met, and the Corporation comes into existence and has all the legal powers of any natural person. Examples include private companies and public companies like BHP. Question 4 A Corporation Sole has only one Shareholder, so it is not a real Corporation. Discuss.

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Corporations exist a wide range of settings and come in different types. The Corporation so created can be a Corporation Sole or Corporation Aggregate. Corporations Aggregate are an aggregation of a group of coexisting persons (members). The Corporation is a separate and distinct entity (legal person) owned and controlled by the Members. In a Corporations Sole however the office and office-holder, conceptually retain dual capacities in that they may act both in a corporate capacity and in an individual capacity and as such there is no legal distinction between the office of the sovereign (state) and the individual person who holds it. The Corporation Sole was traditionally a legal device to enable the Church of England to hold land and titles and transmit them on to subsequent holders on the same office: i.e. the Archbishopric of Canterbury. There are Corporations Sole in Australia: Roman Catholic Archbishop of Perth v AA, however such a Corporation does not fall under the Act: s57A (2)(b). A Corporations Sole can create either by Charter, or by Legislation: Bank of New South Wales v Commonwealth; Property for Public Purposes Act 1901 (Cth). Some examples Corporations Sole include; the Crown; the Papacy; Bishoprics; and The Public Trustee. Further to the example, The Public Trustee is administered by the Public Trustee Act 1941 (WA) s4(2) and makes The Public Trustee (and successors in office) a body corporate in Western Australia. The attributes which the Public Trustee are given are things like perpetual succession and a common seal, which are common in in other examples of Corporations. In addition, The Crown can enter into contracts and possess property, and it is in this way that the Crown (state) legally acts as a person and at the same time she may also act as a natural person in a private capacity separate and apart from the role filling these various offices (corporations). Therefore, while a Corporation Sole has a single member, it still acts as a real corporation. Question 5

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What is ASIC, and what are its roles? ASIC is Australia's integrated corporate, markets, financial services and consumer credit regulator. ASIC is an independent Commonwealth Government body. ASIC is set up under and administers the Australian Securities and Investments Commission Act 2001 (ASIC Act), and they carry out most of their work under the Corporations Act 2001 (Corporations Act). The functions of ASIC include:        

Regulation of securities and futures markets; Regulation of company takeovers; Registration of Corporations Investigative powers to ensure compliance with Corporations Law; To bring legal proceedings for misconduct as well as intervene in existing proceedings; Education function – policy statements, practice notes, press releases; Works with ASX on certain matters Subject to the ASIC Act, ASIC has the general administration of the Act; Section 5B

Question 6 What are ASIC’s powers to investigate? I will focus on the power given to ASIC under the act to commence formal investigations per s13. Under s13 ASIC is given the power to investigate when it thinks it is expedient in the administration of the Corporations act and where it has reason to suspect there may have been contravention of the act itself (s13(1)(a). It may also investigate for contravention of other laws of the Commonwealth, State or territories which concern management/affairs of body corporate or investment scheme or involves a fraud or dishonesty of the same (s13(1)(b). Under s13(2) they may also commence formal investigation if they suspect that unacceptable circumstances (that is conduct/control or acquisition of which is unacceptable) under

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s657A has or may have occurred. The investigation may therefore be made if they believe it is expedient to determine whether to apply under s657C to the Corporations and Securities Panel to make such a declaration of unacceptable circumstances or for the administration of the Corporations Act. Section 13(3) allows for investigation to commence should ASIC suspect a registered liquidator hasn’t in the past or isn’t currently performing their duties faithfully. Section 13(6) allows investigations where ASIC has reason to suspect a contravention of a provision of division 2, part 2 has been committed. Section 13(7) applies to investigations of consumer or small business contracts relating to financial products or supply or possibility of supply of financial services. Where ASIC may think it expedient to look into the terms of the contract to determine if an application need to be made to the Court under s12GND to declare the terms as being unfair, an investigation may be commenced. Therefore, the general powers of formal investigation given to ASIC by parliament appear quite broad and enabling to commencement of such investigations. Question 7 Describe the steps to analyse a criminal offence under the Act. Use s184(1) as an example. Using s184 (1) of the CA Act as an example, the procedure in analyzing a criminal offence under the Act consists of the following steps; Step 1 - Find the charging provision The charging provision is s184 (1) Good faith, use of position and use of information--criminal offences Good faith--directors and other officers (1) A director or other officer of a corporation commits an offence if they:

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(a) are reckless; or (b) are intentionally dishonest; and fail to exercise their powers and discharge their duties: (c) in good faith in the best interests of the corporation; or (d) for a proper purpose. Step 2 - Determine if the charging provision is Strict Offence A Strict Offence is one that does not include a mental element: Jiminez v R. All offences under the CCWA are strict unless the provision creating the offence includes a mental element; s23. Here s184(1)(b) contains a mental element as the intention to be dishonest is expressly declared as an element of the offence. Step 3 - Determine if the conduct is positive or negative Here the conduct is negative as it includes to “fail to exercise their powers and discharge their duties.” Step 4 - Determine if the person is a corporation Here you determine if the person is a corporation or not for penalty purposes, either way you move to step 5. Step 5 - Determine if the penalty is listed in Schedule 3 • If the person is a corporation and if the penalty is listed in Schedule 3, apply Schedule 3 and then s1312. • If the person is a corporation and if the penalty is not listed in Schedule 3, apply s1311(5) and then s1312. • If the person is not a corporation and if the penalty is listed in Schedule 3, apply Schedule 3. • If the person is not a corporation and if the penalty is not listed in Schedule 3, apply s1311(5).

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Here the offence is listed in Schedule 3 and is 200 penalty units or imprisonment for 5 years, or both. If the person is a corporation the penalty that the court may impose is a fine not exceeding 5 times the maximum amount that, but for this section, the court could impose as a pecuniary penalty for that offence; s1312 – Penalties for bodies corporate. Question 8 Ian is normally a very careful fellow but after a drunken weekend with his stockbroker (and now former) girlfriend he discovers that he is a Shareholder in a number of companies: 1. Crump Pty Ltd; 2. Ibex NL; and 3. Wheel Ltd. Ian is new to Shares and wants the broad stokes so he can work out if he is OK. Particularly we wants to know: 1. What types of Corporation are they? 2. How many Directors should each Corporation have? 3. What is the nature of Ian’s liability to the Corporation’s Business: 1. During operation? 2. At a Winding Up? Section 112(1) sets out the types of companies that can be registered under the Act. The types differ in the liability which the members undertake to contribute to the debts of the Corporation. Crump Pty Ltd This a proprietary limited company; s 45A(1). A proprietary limited company (abbreviated as 'Pty Ltd') means the company

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is privately held and is a business structure that has at least one shareholder and up to 50. A Proprietary company must have at least 1 director. That director must ordinarily reside in Australia; s201A The nature of Ian’s liability to the corporation during operation is that directors do have the option of calling on uncalled capital from the Shareholders. If the call is made, and Ian has uncalled capital on his shares, he is under a contractual obligation with the Corporation to pay the call. If Ian fails do so the Corporation can sue Ian for the debt. The nature of Ian’s liability to the corporation during windup is “Limited” meaning the liability of the shareholders (Ian) to pay the debts of the company is limited by the amount of shares. The capital can/will be returned to the Shareholders at the end of the Corporation, conditional on the satisfaction of all Creditors debts. Ibex NL This a public no liability company (suffix NL) and under the Act must have as its stated objects that it is solely a mining company and that it is not entitled to calls on the unpaid issue price of shares. A public corporations must have 3 Directors: 201A(2). The nature of Ian’s liability during operation is he is not liable as a shareholder to pay calls on unpaid shares. This differs from the traditional company structure where the purchase of shares is a binding contract. Should Ian choose not to pay when there is a call, he will forfeit both the unpaid and paid shares; s254Q The nature of Ian’s liability to the corporation during windup is also “Limited” meaning the liability of the shareholders (Ian) to pay the debts of the company is limited by the amount of shares. The corporate veil is still in place.

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Wheel Ltd This company is a public as it has only Limited or Ltd after its name. An example is a company listed on the ASX. All Corporations that are not Proprietary Corporations are Public Corporations: s9. A public corporations must have 3 Directors: 201A(2). The nature of Ian’s liability for the Corporation during operation is he is liable for its debts only to the extent of the amount of capital invested. The capital he paid into the Corporation is at risk while the Corporation continues. The nature of Ian’s liability to the corporation during windup is also “Limited”, but he can stand to lose all his capital. The corporate veil is still in place. The Capital can/will be returned to the Shareholders at the end of the Corporation, conditional on the satisfaction of all Creditors debts. Question 9 At all times during this year Quebec Pty Ltd has had: 1. 3 Shareholders: 1. Number Ltd; 2. Oscar Ltd; and 3. Poppa Ltd 2. 38 employees; and 3. 5 Directors (None of the Directors are also employees); 4. Gross revenue for the year of $9.5 million; 5. Gross assets of $4.7 million; and 6. 605,000 Issued $1 Shares (All Fully-paid): 1. Number Ltd has 100,000 Shares;

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2. Oscar Ltd has 200,000 Shares; and 3. Poppa Ltd has 305,000 Shares. Answer the following questions: 1. What type of Corporation is Quebec Pty Ltd? 2. If Quebec Pty Ltd has limited liability: for what and to whom? 3. Does Quebec Pty Ltd have a Holding Corporation? 4. How can Quebec Pty Ltd raise capital? Question 1 Quebec Pty Ltd is a proprietary limited company; s 45A(1). A proprietary limited company means the company is privately held. A Proprietary Corporation can be either a: 1. Large Proprietary Corporation; or a 2. Small Proprietary Corporation: s45A. Quebec Pty Ltd is a Small Proprietary corporation as it has a consolidated gross operating revenue of less than $25M, its consolidated gross assets are less than $12.5M and it has less than 50 employees. Question 2 Quebec Pty Ltd has limited liability meaning the liability of the shareholders to pay the debts of the company is limited by the amount of shares. The company has limited liability where the members of the company are not personally liable for the company's debts or liabilities. Question 3 A Holding Corporation is a Corporation that has controlling interest in another Corporation known as a subsidiary; s46. Therefore Quebec Pty Ltd has a holding corporation being Poppa Ltd. Poppa Ltd controls 50.4% of the shares so has a controlling interest in Quebec Pty Ltd.

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Question 4 Quebec Pty Ltd cannot seek Share Capital from any member of the public, as public companies are subject to information disclosure requirements. Quebec Pty Ltd can only seek Share Capital from: 1. Existing Shareholders; 2. Private agreement; or 3. Employees: s113(3). Question 10 What would be the consequences if a Public Corporation did not have a Company Secretary? Minimum number of secretaries Proprietary companies (1) A proprietary company is not required to have a secretary but, if it does have 1 or more secretaries, at least 1 of them must ordinarily reside in Australia. Public companies (2) A public company must have at least 1 secretary. At least 1 of them must ordinarily reside in Australia. Strict liability offences (3) An offence based on subsection (1) or (2) is an offence of strict liability. 2 – Is the Offence Strict? A Strict Offence (or Strict Liability Offence) is one that does not include a mental element: Jiminez v R (1992) 173 CLR 572. all offences are “strict” unless the provision creating the offence includes a mental element: The Criminal Code s23. In this case, the offence is not strict due to the s204A(3).

3- Is the conduct Positive or negative?

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This step should be decided by reference to s...