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Law of Business Organization: Corporation Act

Question:

Discuss about the Law of Business Organization for Corporation Act.

Answer:

Introduction

Part 1:

After deciding that the business structure is a company, there are mainly six steps for registration of a company:

Step 1: Decide On Your Business Structure

Step 2: Choose a Company Name 

Step 3: Determine if you will operate the company under the replaceable rules or a constitution or a combination of both

Step 4: Obtain Consents – member(s), director(s) and secretary (secretaries)

Step 5: Complete and lodge your Application Form

Step 6: Obtain a Certificate

But if the liability is limited then at the end of the name of the company Ltd will be put at the end. And if not limited by liability then no Ltd is required. If the company formed is a proprietary company then the company must include the word proprietary or Pty. A company which is proprietary limited uses an abbreviation Pty Ltd.

It means that the corporation is held privately by the shareholders who have the limited liability according to the amount of shares they have. Pty Ltd corporations form the vast majority of the corporations which has been registered in Australia. All the Corporations in Australia are governed by ASIC. Corporations have to file an application form i.e. 201 with ASIC for making a corporation registered under the Corporations Act, 2001. Then a certificate will be provided to the corporation.

When a certificate of registration is received from ASIC then the company will comes into force. The constitution of the company will include the internal governance of the company. It can operate under:

The replaceable rules specified in corporation act.

A Constitution

Combination of both  (Mills and Woodford, 2015).

When an individual register a company, he is creating a Separate legal entity in which he will be an officeholder with some duties to be followed (ASIC, 2016).

Companies are created by way of registration by the Australian Securities & Investments Commission.

Under form 201 of Australian Securities & Investments Commission an application for registration is being done to register a company as Australian company. The basic purpose for registering a company under form 21 is for registering an Australian Company which is new. Different fees are being levied under this form as follows:

Under 201A, fees of $469 is imposed on the public company having share capital                   

Under 201B, fees of $387 is charged on the public company limited by guarantee       

 Under 201C, a fee of $469 is levied on Proprietary Company (ASIC, 2016).

Form 201 of ASIC should also include details of the following:

Type of the company

Members, Secretary, and directors

Registered office

Internal Governing Rules and Name of the Company.

There are some pre- registration activities which might take place in the company. The activities may include a Contract before registration as specified under section 131 of the Corporations Act, 2001.Under this section, a company will be bound and will be permitted for benefits if a person makes a agreement on behalf of the company. (CCH Australia Limited, 2011).

Section 134 of the corporations Act, 2001 states that, “The provisions of this act govern the internal management of a company which will apply to the company in the form of replaceable rules, constitution or both.”

Replaceable rules were introduced in the year 1998. As per these rules, company has the power under which it may elect to rely on some or all of the replaceable rules mentioned under the act. The Rules are applied unless they are displaced or modified by way of constitution under section 135.

According to section 254A, a corporation has the authority to issue additional benefit, and redeemable preference shares etc. part (2) of this section states that, “If it is clearly mentioned in the constitution of the company that, some rights are connected to the preferential share in regard to some matters. Then the company has a right to issue preference shares.”(Australasian Legal Information Institute, 2016).

Subsection (3) of this section states that, “exchangeable preferential shares are preferential shares that are given on the term that they will be legally responsible to be taken back. They are redeemable:

At a set point or on occurrence of an occasion

At the choice of the corporation

At the selection of the shareholder (Lawyers, 2016).

Therefore, as mentioned above in six major steps a corporation can be registered by ASIC.

PART 2:

Section 198A talks about Powers of Directors

Under the direction of the director, the business of the company is being managed. All the powers of the company are being exercised by the directors. Except the powers which are exercised by the company in its meeting as required by the way work is performs and by the company’s organization. It contemplates delegation done by board when it has been stated that company is being run by the directors of the organization (CCH Australia Limited, 2011).

The reason for inclusion of this section under Corporation act was established in AWA Judgment in which it was held that, “Although laws of a company have not determined the division of functions between the board and management. Instead it established in reply to the demands of change in the structure of the company and commercial practice.” It also stated that as board of the corporations cannot manage day to day business so that work should be delegated to the executives of the business. The directors rely on the management of the company to manage the corporation. The directors expect to be informed of anything adverse or proper for the consideration by the board. The directors rely on the management to:

Prepare budgets

Have knowledge of business affairs

Establish proper internal control, management of information system, etc (Morison and Ramsay, 2016). 

Matter of private concern- Director’s duty to reveal are being stated in section 191

It is the responsibility of the director to inform other executives of his own benefit before the conflict arises and should give a notice. If the executive who has a personal interest do not tell the other directors then strict liability will be applied. It is said to be good governance for all the entities when they have in place a process or policy governing the acts of directors. Where there is a realistic possibility that director may have:

Material personal interest in matters which will be considered at the meeting

A conflict between duties which a director owes to the entity in which he is serving.

Director has various fiduciary duties which he has to perform. These duties are imposed as obligations to avoid any fight and perform in a good way. It is the conflict which has given rise to the inclusion of this section under the act. As there are many situations which may arise when the director has his personal interest that conflict with the interest of the company. So therefore, it is the personal duty of the director to disclose conflicts of any type (Governance Institute of Australia, 2014).

250R (2) and (3) Includes Business of AGM

Subsection (2) includes an AGM of a company which is listed on stock exchange; a declaration must be put to vote for adopting a remuneration report. And for the purpose of this Sub-section approval is to be given for adapting the report as contained in the company’s annual financial report. It requires that a resolution to adapt should be put to vote at the AGM. However, shareholders should note that the vote is only advisory not binding on directors or company.

Subsection (3) includes the make your choice on the declaration will be consultative only and does not connect the executives or the corporation. But if 25% of the votes are castes against 2 consecutive annual resolutions. The act may require a shareholder to vote on whether to convene a meeting at which directors who were there when vote was casted must be there for re election or not (Understanding Company Law, 2016).

References: 

ASIC (2016) 201 Application for registration as an Australian company. [Online] ASIC. Available from: http://asic.gov.au/regulatory-resources/forms/forms-folder/201-application-for-registration-as-an-australian-company/.  [Accessed on 1/09/2016]

ASIC (2016) Starting a company.[Online] ASIC. Available from: http://asic.gov.au/for-business/starting-a-company/. [Accessed on 1/09/2016]

Australasian Legal Information Institute (2016). Commonwealth Consolidated Acts: CORPORATIONS ACT 2001 - SECT 254A. [Online] Australasian Legal Information Institute .Available from: http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s254a.html. [Accessed on 1/09/2016]

CCH Australia limited (2011) Australian Corporations & securities legislation. North Ryde, N.S.W.: CCH, Australia.

CCH Australia Limited (2011) Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations.

Governance Institute of Australia (2014) Good Governance Guide. [Online] Governance Institute of Australia .Available from: https://www.governanceinstitute.com.au/media/365394/ggg_issues-to-consider_material-personal-interests.pdf. [Accessed on 1/09/2016]

Lawyers, D. (2016) Redeemable Preference Shares. [Online] Dundas Lawyers. Available from: https://www.dundaslawyers.com.au/redeemable-preference-shares/. [Accessed on 1/09/2016]

Mills, A. and Woodford, W. (2015) Company Accounting. 2nd ed. Pearson Higher Education AU.

Morison, R.G. and Ramsay, I. (2014).Responsibilities of the Board of Directors: A research Note. Company And Securities Law Journal. http://law.unimelb.edu.au/__data/assets/pdf_file/0008/1709504/22-CSLJarticle20142.pdf. 32. [Accessed on 1/09/2016]

Understanding Company Law. (2016). Pathways – Legislative Framework. [Online]Available from: http://www.uclaw.com.au/pathways/legislative-framework/. [Accessed on 1/09/2016]

 

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