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Law of Business Organisation

Question:

Describe about the Law of Business Organisation.

Answer:

The ABIC PTY Ltd Company will be an Australian private Company number 000 010 213 under the Corporation Act 2001. ABIC is a Mining Company registered and located in Victoria. The registration certificate was issued by the Australian Securities and Investments Commission (ASIC) 31st August 2016. The registration and formation of the company is based on both the article and memorandum of associations. Conversely, the company is a limited by shares (Bathurst, 2013, p. 111).

The company shall be governed by the Internal Management of the Company that prescribes a combination of replaceable rules and a constitution under Sections 134 and 135 of the Corporation Acts 2001.

Internal Management of the Company: a combination of replaceable rules and a constitution

ABIC's constitution

The company shall be governed by a constitution to be adopted before its registration. The constitution will govern the contracts and relationships between the following stakeholders (Hanrahan, et al., 2016, p. 123):

  1. The company and its shareholders;
  2. The Company and its directors;
  3. The company and management and secretaries;
  4. The company and its directors;
  5. And, the relationship between different stakeholders.

In compliance with Section 139 of the Corporations Acts 2001, a copy of an up-to-date constitution will be provided to any member within seven days upon request. However, any member will have to incur the prescribed cost as outlined under the Corporation Acts regulation 1.1.01 (CCH Australia Limited, 2011, p. 14). Likewise, the constitution will act as a guidance (i.e. provide terms of engagement between each the registered members).

Some of the provisions contained in the company's constitution comprises of:

  1. Voting rights
  2. Appointment of the directors
  3. The power accorded to the directors
  4. The negotiable instruments
  5. Appointment and the law governing the managing directors
  6. Directors' remuneration
  7. Annual General Meetings
  8. Allocation and transfer of shares

Limited Share Company

According to the Corporations Act 2001, section 45A (1) of ASIC, the ABIC company shall be made up of three major shareholders and other 45 preference shareholders. Both the major shareholders are minor shareholders the residents of Australia (CCH Australia Limited, 2012, p. 48). The company will have three directors and a secretary, James Burner who is 32 years of age. Both will be appointed under section 204A of the Australian Corporations Act 2001.

As a Limited share company, the liability of ABIC's shareholders shall be limited to the amount of capital they initially invested. In other words, in the case of bankruptcy, the creditor shall only receive the value of shares in additional to the premium paid when the shareholders were allocated the shares by the company (CCH Corporate Law editors, 2009, p. 93). If the company goes insolvency, the shareholder's personal assets shall be protected from the creditors. However, the many that have been invested in the company might get lost.

The initial shareholders were issued with shares during the registration of the company and have been protected against share allocation to the general public. The article of association restricts the company from providing its shares to the general public (Hanrahan, et al., 2016, p. 56). However, a shareholder (the seller) shall transfer a given number of share to a new owner (the buyer) through a private agreement between the two parties.

The company shall have two categories of shares namely:

The ordinary shares owned by three investors that are the Jones family, Aloa Ltd Company and the Afai Miners owning 52.2%, 35% and 11.7% ordinary shares respectively. The major shareholders have limited liability though they are accorded the voting rights (Tomasic, et al., 2002, p. 127).

Preference shareholders whose shares shall be governed by the original capital invested in the company. Preference shareholders have no voting rights although they enjoy limited liability against the creditors as well (McQueen, 1992, p. 12).

PART 2:

Explain Why the Following Sections Are In The Corporations Acts? You are required to explain the historical background and reason for their inclusion in the Corp. Act

SECTION 198A

Section 198A of the Corporations Act enacted in 2001 became effective on July 1st, 2003. It defines the role, responsibility and the power of the directors. According to this section, the directors are divided into executive and non-executive directors. While executive directors are the employees of the company, non-executive members are not (Harris , et al., 2009, p. 132).

Section 198A is divided into two parts namely 198A (1) and 198A (2). 198A (1) species the management of the company which is a sole responsibility of the directors. While section 198A (2) outlines how the directors should exercise the power accorded to them. Likewise, the section defines the powers that the directors are allowed to exercise while outlines those that have been protected from them (Barrett, 2015, p. 34). That is the powers that can only be exercised during the general meetings. The directors may be authorized to borrow money on behalf of the company, issue debentures, and shares and invest the company's capital.

The directors (executive) have the power to run the business on behalf of the shareholders. According to the section 198A (1), the activities of the company is managed under the direction of the directors (Barrett, 2015, p. 67) (Barrett, 2012, p. 71). The power of the directors applies in many company structures like proprietary companies, public companies among others. The two groups of directors must act within the terms and conditions prescribed under Corporations Act 2001 (Baxt, 2016, p. 51).

Conversely, section 198A also outlines four duties for the directors that are a) diligence and care; b) good faith; c) proper use of information and d) proper use of position.

SECTION 191

Section 191 of the Corporations Acts enacted in 2001 which addresses the material of personal interest that is the duty to disclose by the directors became effective on July 1st, 2003 (CCH Corporate Law editors, 2009, p. 69). The section states that in the case of conflicts, a director is under obligations to notify other directors of the material personal interest of the company businesses. The notice of material of personal interest in the affairs of the company should be served unless the affected directors are protected by one of the factors outlined in subsection (2) (CCH Australia Limited, 2011, p. 85).

According to subsection 2, a director is not under obligation to notify other directors of his/ her interest in the company affairs if:

The interest arises because the said direct is a member of the company and shares common interest just like others; or if the interest is as a result of their remuneration.

The interest is subject to approval during the general meeting. If the company is proprietary in nature and other directors are well informed about the degree and nature of the interest (CCH Australia Limited, 2012, p. 64).

If the director had not yet been appointed to the current position when the material of personal interest was noticed.

Subsection (3) of section 191 defines the nature, content and extent of the notice of interest that should be disclosed to other directors. It is important to note that the details of the notice must be recorded in the minutes of the meeting between the directors (CCH Australia Limited, 2011, p. 68).

SECTION 250R (2) & (3)

SECTION 250R (2) of the Corporations Act which addresses the vote on remuneration report was enacted in the ASIC in January 2004 but became effective 1st of July the same year. The subsection states that a resolution on the adoption of the remuneration report becomes effective through a vote. However, the vote can only take place if the members were served with a notice about the resolution prior as required under section 249L (2)(a) (Barrett, 2015, p. 53).

Section 250R (3) of the Corporations Act which addresses the effects of the resolution on the company's business was enacted in 2004 and became effective on July 1st, 2004. The subsection states that neither the directors nor the company is under obligation to vote for the resolution on adoption of the remuneration report (Bathurst, 2013, p. 86). The resolution should act as an advisory.

References List

Barrett, R. I., 2010. Making the acquaintance of Pilcher, Uther and Baldock. Law Society Journal, Volume 30.

Barrett, R. I., 2012. Towards Harmonised Company Legislation – 'Are We There Yet'?'. Federal Law Review , Volume 41.

Barrett, R. I., 2015. Speech delivered at the Law Council of Australia. Business Law Section Corporations Workshop.

Bathurst, H. T. F., 2013. The historical development of corporations law. Australian Bar Review, 37(217).

Baxt, R., 2016. Corporations Legislation 2016. AUSTRALIA: Lawbook Co..

CCH Australia Limited, 2011. Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations. 3rd Edition ed. Sydney: CCH Australia Limited, 2011 - Corporation law.

CCH Australia Limited, 2012. Australian Corporations & Securities Legislation, 2012, Vol 1. Sydney: CCH Australia Limited.

CCH Corporate Law editors, 2009. Australian Corporations & Securities Legislation 2009: Corporations Act 2001, ASIC Act 2001, related regulations. Sydney: CCH Australia.

Hanrahan, Ramsay & Stapledon, 2016. Commercial Applications of Company Law. 17th Edition ed. Sydney, Australia: CCH publishers.

Harris , J., Hargovan , A. & Adams, M., 2009. Australian Corporate Law,. 4th Edition ed. Sydney: Lexis Learning.

McQueen, R., 1992. An Examination of Australian Corporate Law and Regulation 1901-1961. University of New South Wales Law Journal , 15(1).

Tomasic, . R., Bottomley, S. & McQueen , R., 2002. Corporations Law in Australia. Sydney: Federation Press.


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