BLAW2006 Company Law for Business Curtin University

Curtin University

BLAW2006 Company Law for Business Curtin University

Week 1 – Companies, Company Law and the Legal Nature of Companies
– 1. The use of a company for business purposes;
– 2. How companies are structured;
– 3. The historical development of companies;
– 4. The basic characteristics of a company;
– 5. Various sources of law applying to companies;
– 6. The corporate principle of separate legal entity;
– 7. The concept of limited liability; and
– 8. The role, functions and power of ASIC.
What is a Company?
A company us an artificial entity recognized by the law as a legal person with its
own rights and liabilities. Corporations Act 2001, regards a Company registered
under its act as once type of corporation. Separate entity, distinct from its
shareholders, its directors, officers and employees. Shares the same legal capacity
and powers of a human being, thus it can enter into contracts, own property and
sue or be sued. It enjoys Limited Liability; meaning shareholders are not personally
liable for their company’s debts. Shareholders Liability is limited to paying the
issue price of the shares that they own. Created by registration under corpartions
Act: s119. Shareholders invest, directors manage.
• Limited liability makes it easier for companies to raise funds by issuing
shares.
• With limited liability, risk if transferred from members to creditors.
• Creditors may request personal guarantees and security.
Sole Trader/ Partnership
Growth and size can be restricted as owners carry full liability and owners
therefore manager the business.
Company regulations and various sauces of law
There are three mains sauces of rule that regulate companies:
 Legislation – Corporations Act 2001, Australia Securities and Investments
Commission Act 2001 which established ASIC to administer and apply the
Corporations Act 2001.
 Case Law – Based on established contractual and fiduciary principles.
Doctrine of precent.
 Companies Constitutions – Rules and regulations for internal
management.
 ASX listing rules and ASIC audits.
Architecture of Companies
 Must have atleast 1 member: S114
 The Capital Structure: Funded by equity, debt or retained profits.
 Managed by officers who are headed by directors. Members cannot
normally make management decisions. The company secretary play and
administrative role.
History
 Incorporation by royal charter
 17th century – Joint stock companies
 Inadequate Legilations: Bubbles act 1719- on royal charter incorporate
could trade.
 First Corporations Act 1844 (England) allowing non royal charters to be
corporate and traded through the creation of registrar of joint stock
companies , however limited liability was not introduced until 1855.
 Over the years the grounds for case law and legislation grew for company
law.
 Australia: S51(xx) To make laws with respect to foreign corporations and
trading and financial corporations formed within the limits of the
commonwealth.
 Huddart Parker V Moorhead and Strickland v Rocla Concrete Pipes
Ltd shows the evolution of corporation law and the
commonwealths power. Power restricted to foreign, trading
and financial only.
 Attempts to unify the law in Australia:
o Uniforms companies Act 1961
o The Co-operative scheme 1981-1991
o The Corporations Law 1991 to 2000
Wakim and Rv Hughes
Only states could prosecute, commonwealth could not. Scheme
cannot work if case law does not apply throughout Australia.
o The Corporations Act 2001
Allows Commonwealth to prosecute, has been extended to 2016.
ASIC
Australian Securities and Investment Commission, regulates Australian companies,
financial services and financial service organisations and professions. Has a
regional office in each state. Ascot database of information on companies and other
corporate bodies registered under the Corporations Act.
Functions:
• Register and regulate companies.
• Receive and process information.
• Register company auditors and liquidators.
• Regulate financial markets.
• Regulate providers of financial services.
• Investigate contraventions of corporations legislation and provisions of the consumer law.
Powers
• Power to exempt compliance with the Corporations Act.
• Power to investigate and gather information.
• Power to commence civil proceedings and criminal action.
Roles
• Corporate Regulator.
• Corporate investigator and prosecutor.
• Corporate adviser and educator.
• Keeper of public corporate record.
Recent Rulings
 Finds CFD providers failing on client money procedures, 4th june 2012 damon taylor
 ASIC takes bank to task over credit card ad, 5th june 2012 – bankwest
Separate Legal Entity Case law;
Salomon v Salomon (1897)
• Facts: Mr S sold business to Co. Co issued shares and debentures to Mr S. In reality a “one
man” Co. Co wound up.
• Issue: Can Mr S as debenture holder receive payment ahead of unsecured creditors?
• Held: Upon incorporation a separate entity is created.
A Co’s property is not that of its participants
Macaura v Northern Assurance Co Ltd
• Facts: Land sold to Co, but insurance remained in M’s name. Timber destroyed by fire.
• Issue: Did M have an insurable interest?
• Held: No, only Co had the insurable interest since co owned the timber.
A Co can contract with its participants (director)
Lee v Lee’s Air Farming
• Facts: Lee was director and owned all except one share in Co. Lee was killed in an accident
whilst working. Widow claimed workers Compensation.
• Issue: Can Lee be a worker?
• Held: Co is a separate person. Co can enter into contract with Lee.

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