Essay: Companies: The Corporations Act S112

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Companies: The Corporations Act S112

' Partnership Act
A partnership is a 'structure where a person in a business relationship is acting in common with a view of profit'. Section 115 of the corporations act allows a maximum of 20 partners in a partnership formed to gain profit, except for professional partnership. The partnership agreement may be evidenced in writing. The agreement has a set of rights and obligations and also facilities the resolution of disputes within a partnership

' Corporations Act 2001(cth)
A partnership is not a separate legal entity. Individual partners must own their assets like a sole proprietor and incur the obligation to the partnership business personally.
' Limited partnership act
Limited partnership is a special form of business association that allows investors who want only to contribute capital to a business, and have no interest in management but to enjoy benefits of limited liability.
' Trustees Act 1962
Trust is where a person has to hold or invest property for the benefit of another person. A Trust consists of three parties; settlor ' the party that has created this trust and contributes property, the trustee ' the party that controls the trust property; and the beneficiary - the party that benefits from the trust. There are a few types of trust used in Australia. A Trust can be formed for public or private purposes. A trust is usually created, deliberately, as a commercial structure to exploit the benefits like tax minimisation; asset protection; and reducing asset level for income threshold that a trust provides.

' Companies: The Corporations Act S112
Companies registered under the Corporations Act 2001 (cth) are either proprietary or public companies. Companies limited by share can be either proprietary or public.
' Proprietary companies S45A/ 113
A Proprietary company must be limited by shares or be an unlimited company with share capital; have no more than 50 non-employee shareholders; and not to do anything that would require disclosure to investors under fundraising rules of the Act.
' S9 defines Public companies as a company other than a proprietary company. Therefore, a public company has unlimited membership and greater access to raise funds from the public. A public company has to provide disclosure and more regulation such as; auditing and reporting requirements.
' S195 (1) states that if a director of a public company with material personal interest in a matter that is being considered at the directors meeting must not; be present while the matter is being considered; or have a vote on the matter.
' Replaceable rules S135(2)
A provision of a section or sub-section that applies to a company as a replaceable rule can be displaced or modified by the companies' constitution.
' Companies limited by shares S9
'a company formed on the principle of having the liability of its members limited to the ( if any) unpaid on the shares respectively held by them'.
The concept limited liability for a company with a share capital means the member will be compelled to pay the company only what their shares were issued for.

' S148 (2)
A Company with limited liability share capital must have the word 'limited' or 'LTD' in their names.
' Unlimited Companies S112 (1)
Unlimited companies must have share capital and can be either proprietary or public.
Members of unlimited liability have no limits on the liability for the debts of the company. There is an obvious risk to members but this is the most secure type of company for creditors.
' Company limited by guarantee S148 (2)
Companies limited by guarantee do not have shares or shareholders. However, they have members, entities and people that undertake the pay funds (to a set limit stated in their guarantee) in the event that the company should wound up. Only public companies can be limited by guarantee.

' No liability companies
S112 (2) states these companies must have share capital and have a constitution that states a sole object for the company of 'mining purposes' unlike other companies. Under this no liability, the company has no right to enforce a call made to shareholders on any unpaid share. S9 defines 'mining purpose' to include actual mining activities.
S254M (2) provides members with their rights to avoid contributions and calls.
Under S148 (4) the companies are required to have the words 'No Liability' or 'NL' in their names
' Corporation Act S124
A company is a separate legal entity. A company is a legal person and is considered to be distinct from its owners, members, employees and agents. A company has the power of an individual where it can own and dispose of property and other assets; enter into contracts; and sue and be sued. Limited liability is another attractive feature of companies, where shareholders are not liable in their capacity as shareholders for the company's debt.
' Solomon & Solomon case

Applying the Laws

The separate legal existences provided for companies by the corporations Act 2001 (cth) is not conferred on partnership or trust. A company with legal right of an individual can sue another party unlike trust and partnership. A company has rights to own property and the partnership property collectively belongs to the partners. A company member can enter into contractual relationship with the company or member's thought constitution and replaceable rule. Unlike the trust has no contractual relationship with the trust or beneficiaries. A partnership terminates and creates itself every time a partner joins or leaves. Whereas, a company with perpetual succession is where the company is unaffected by parties moving in and out of membership or management. A partnership has joint and several liabilities except for limited partnership where liability is restricted but that restriction is confined to the partner that does not participate in management.

The partnership and trust are not the best options for Rebecca and Susan as a company will serve the purpose they require. A proprietary company limited by share will give them options they require. As per their situation they need shares, want a constitution with certain rules and be the directors and be involved in the management of their company.

Question 2
(i) According to S201A of the corporations Act, a proprietary company must have at least one director ordinarily residing in Australia. Susan and Rebecca can both be the directors of the company. They both must provide a written consent to be appointed as directors: S 120 of the corporate law.
Corporations Act 2001 (cth) allows a company to adopt its own set of internal rules by adopting a constitution. This will allow Susan and Rebecca to add their rule that Susan and Rebecca will remain directors until they decide to resign from the post. S136 (1) (a) states that a company can adopt its own constitution if the members agree in writing to the terms of the constitution at the time of registration and before the application for registration is lodged. Members can create and alter company's constitution.
S104 (1) (b) explains that the constitution of proprietary company has procedures to remove its directors. However the company can alter its constitution under S136 unless the rules are made unalterable S136 (4). A breech can only be enforced if this has affected an officer in their capacity as directors and secretary under S140 (1) (b). This requires members to take up additional share, increase in member's liability and increased restriction on rites.
(ii) The change in company type can be allowed by S162 of the corporations Act 2001 (cth). A company may change to a company of a different type as follows: passing a special resolution revolving to change its type; and complying with sections 163 and 164. Under S162 (3) a copy of special resolution is required be lodged with ASIC within 14days. This could be added to the constitution but it does not concern the members that much.
A change in company type does not create a new legal entity; or affect the companies exciting property and rights or obligation (except as against the members of the company in their capacity as members); or render defective any legal proceedings by or against the company or its members. ASIC must give the company a new certificate of registration.

Consequences arising in this constitution can be that the decisions are made by both board of directors and members. The precise scope of powers of each organ is defined by the company's internal governance rules and general principals of company law. Members are entitled to vote limited matters reserved to them while directors have the power to manage the company.
(iii)The company's constitution can be amended as the company can adopt the constitution. The corporations Act provides a set of model rules, in the form of replaceable rules, which a company may adopt. The company review act is set out in S134 of the corporations Act, which explains that 'a company's internal management can be governed by the provision of this law that applies to the companies replaceable rules. The governing legislation contains a number of both mandatory and optional requirements for proprietary companies. S136 explains that the members have the power to remove the directors.
Corporate constitutions create obligations for the company to be directed in certain ways, including but not limited to procedures such as timing and content of AGMs, voting, inspection of company books, the transfer of shares and so forth. Constitutions may also define procedures for members or shareholders to convene meetings of the company.
The Australian Securities and Investments Commission (ASIC) may initiate investigation, order the production of certain documents, fine the company or take further actions against directors if certain laws or obligations are breached. A breach of the constitution will, in certain circumstances, invalidate motions passed by a director's meeting or an AGM. A breach of mandatory legal requirements may again be investigated by ASIC.
(iv) Under S140 (1) that a statutory contract cannot be enforced unless it affects the members in his or her capacity as a member. Being a company accountant under the constitution is not valid as there is no contract between Bill and the company. Bill has to have a contract with the company outside the constitution. Bill has to be a member or have membership rights to enforce this right in the constitution.

However, if Bill is a member, he cannot enforce right pertaining to non- membership matters. E.g, Eley v Positive government life assurance; where the constitution appointed Eley as the permanent solicitor. He sued the company when sacked. The court held that Eley cannot enforce rights in capacity other than a member's right.

Question 3
' Corporations Act 2001(cth) S123
At common law, this allows the company to enter into a contract by affixing its common seal.
' S126 state that a company can enter into a contract without a common seal. This section identifies two ways a person can enter into a contract. Firstly, a person acting under the authority can directly, in the name of the company or as an agency principal, which is on behalf of the company.
' Section 127 explains how a company can execute a document with or without a common seal. If a common seal is used than the document must be witnessed by two directors or one director and the company secretary S127 (2). However, if the common seal is not used, than the document must be signed by two directors or one director and the secretary.

' Corporation Act 2001 (cth)
Express authority arises from the Corporations Act or company's constitution or by the board of directors delegating its power. S198A of the corporations Act gives the board of directors the power to direct management of the company business and to manage all company powers except those reserved for the general meeting to exercise. Therefore, when the directors of board exercise these powers, it is acting as an agent of the company with express actual authority of the company.
Section 130 of the corporations Act has abolished the doctrine of constructive notice. Common law under the indoor management rule incorporated in S128 (1) but subject to limitation in S128 (4); or statutory assumptions under the corporation Act 2001(cth) are there to assist outsiders.
' Corporations Act 2001(cth) S129 (2) and (3)
Under this section the outsiders can only make assumptions if the officers and agents are acting within their customary authority.

In Applying
The principals of agency law apply to companies. There are two legal relationships; one between the principal and the agent and the other between the principal and the outsider. The relationship between the principal and the agent can be created by either actual authority (express and implied) or apparent authority. Bill has an actual authority in this situation where his implied not to exceed his limit of $25,000 without the directors approval. If an agent has not acted within actual authority delegated, a suitable action could be challenged for their position.
Express actual authority by delegation by the board. This occurs when a director with express actual authority gives some of its authority to some other person. The service agreement gives authority to its delegates and is passed down from the board of directors to someone else to grant a special one- off authority to enter into a contract on behalf of the company. For example, a CEO's authority will include express actual authority under his or her service agreement out- lining how much authority is delegated by the board.
Hely- Hutchison v Brayhead Ltd [1968]
Implied authority will almost always be delegated to authority by board to the CEO or the managing director. While this involves express authority, and even where there is no list of delegated powers, the court says that the mere fact of being appointed for this position involves grant of implied actual authority to 'do all such things as fall within the usual scope of that office'. Implied actual authority is most commonly associated with outsiders. This authority can be implied from the conduct of parties and outsiders.
Under common law, an agent has to have these three requirements to have apparent authority to act for a company. Firstly, 'holding out' is where a representative is made for the outside constructing parties that the agent has authority to enter contracts on behalf of the company. Secondly, by someone with actual authority. Lastly; reliance, where the outsider relies on the representation. An apparent authority is where the agent has no authority but is held out by authority to carry out transaction.
To conclude, Bill being the agent with implied actual authority has purchased a package of $30,000 whilst his limit of $25,000. The board of directors have not authorised this sum for him. Under the constitution bill has no authority to transact that amount on behalf of the company. On the other hand, Ronald is an outsider who assumed that Bill has this authority to transact this amount on behalf of the company. However, Bill has no actual authority to carry out this transaction as he is an apparent authority.

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