Download Companies: Separate Personality, Liability, and Governance and more Lecture notes Corporate Law in PDF only on Docsity!
CORPORATE LAW NOTES
Lecture 1- Introduction to Companies.
Separate legal entity/personality – defined in section 111J(2)(1.1). A company has a ‘separate legal existence’ that is ‘distinct from that of its owners, managers operators, employees and agents’. A company has its own ‘property, rights, and obligations’ and a company’s money and other assets belong to the company and can only be used for the company’s purposes. The separate legal personality of companies was recognised and affirmed in Salomon v Salomon. Section 124 describes a company’s legal capacities.
5 consequences of treating a company as a separate legal entity (page 48).
- A company’s obligations and liabilities are its own, and not those of its participants.
- A company can sue and be sued in its own name.
- A company has perpetual succession.
- A company’s property is not the property of its participants (shareholders). Macaura v Northern Assurance Co Ltd (pg 49)
- A company can contract with its controlling participants. Lee v Lee’s Air Farming Ltd (pg 49)
Limited liability – companies can either be limited by shares or limited by guarantee. Most companies are limited by shares so that shareholders have limited liability: they are not liable for the company’s debts and have limited liability to the value of their shares in the company (including unpaid shares). This also means that if a company goes bankrupt, unpaid creditors cannot come after personal assets of participants of the company.
Lecture 2 – Business planning and setting up companies.
PROPRIETARY COMPANIES – Pty Ltd – page 85 onwards.
- No more than 50 non-employee SH, section 113(1). Section 113(2)(b)(i)(ii) explains what an employee shareholder is.
- No fundraising activity (raising capital from the public) that would require disclosure to investors under Chapter 6D, page 879, except for an offer of its shares to (1) existing SH (2) employees of the company or of a subsidiary of the company.
- A proprietary company has far fewer disclosure requirements.
PUBLIC COMPANIES – Ltd – page 87
- Any company that does not meet the proprietary company criteria (does not have to have more than 50 non-employee SH).
- Listed companies are a subset of public companies – their shares are sold on the stock exchange and can raise capital from the public.
The Internal Governance Rules: (page 102).
- A set of arrangements (by-laws) agreed between members to govern the internal workings of the company ( Chapter 2B.4, section 134 – 142 , page 722)
- The REPLACEABLE RULES , page 105.
- Section 134 – ‘A company’s internal management may be governed by provisions of this Act that apply to the company as replaceable rules, by a constitution, or by a combination of both’.
- Companies may elect to rely on some or all of the RRs contained in the CA
- Section 135(2) - The RR apply unless they are displaced or modified by a constitution
- Section 136(2) –A company can modify or repeal its constitution, or a provision of its constitution, by special resolution.
- Section 249X is a mandatory rule for public companies (proxies).
- Section 203C only applies to proprietary companies (removal of directors by members).
- As an alternative to relying on the RR, a company can adopt a constitution containing customised internal governance rules and will override some or all of the RR (section 135).
- Section 140 – a company’s constitution and the RR have effect as a contract between (a) The company and each member (b) The company and each director and secretary (c) A member and each other member The constitution does not create a contract between the company and any other officers (e.g. head chef) – even if the officer is also a member, according to Eley’s case – the constitution confers no rights on a member where the member seeks to enforce a right in a capacity other than a member.
Lecture 3 – Decision making in companies.
Division of powers between:
- Members in general meeting (discussion of SH)
- Board of directors (board delegates decision-making powers to executive officers who work day-to-day in the company ( section 198D(1 ) and (2) and (3) , but they are not organs of the company) - Section 198A (RR) – (1) the business of a company is to be managed by or under the direction of the directors and (2) the directors may exercise all of the powers of the company except any power that this Act or the company’s constitution requires the company to exercise in general meeting. Director’s v Member’s powers:
- Members cannot interfere with the powers of the board - Automatic Self-Cleansing Filter Syndicate Co Ltd v Cunninghame , page 134
Section 201H(1)(3) (RR) – directors of a company may appoint other directors, but this must subsequently be approved by the next AGM. If the RR do not apply, it is also possible for the constitution of a company to allow the directors to appoint additional directors and lay out their own procedure.
3. Change the company’s constitution – section 136 , page 723. Both public and proprietary companies can do this by special resolution under section 136(2) ( section 9 - 75% majority of votes cast by members entitled to vote on the resolution) However, a public company, under section 136(5) must lodge with ASIC a copy of the special resolution within 14 days after it is passed. If it does not, it is, under section 136(6) , a strict liability offence (section 6.1 of the Criminal Code ).
The role of the Board of Directors
- Section 198A (RR) – (1) the business of a company is to be managed by or under the direction of the directors and (2) the directors may exercise all of the powers of the company except any power that this Act or the company’s constitution requires the company to exercise in general meeting. - There are executive directors and non-executive directors. Executive: work in the day-to-day operations of the company – both a director and a full-time employee. Non-executive: not involved in the full-time management of the company – is a director but not an employee of the company. They attend board meetings.
ISSUING SHARES (section 254) Directors have general powers of management under section 198(A) , and section 124(1)(a) stipulates that the board of directors have the power to issue new shares. This, in conjunction with section 254A(1)(b) means that it is within the company’s power to issue preference shares. However, directors cannot exercise their power to issue shares for an improper purpose ( section 181 ).
Variation of Class Rights, page 147 for table.
- Where the company’s constitution sets out the procedure for carrying or cancelling the rights attaching to shares in a class of shares, section 246B(1) states that the procedure must be complied with. - Where the company’s constitution (or lack thereof) does not set out the procedure for carrying or cancelling the rights attaching to shares in a class of shares, section 246B(2) applies. - To offer shares to the public have to be a public company and issue a prospectus outlining the details. - At common law, a corporate action that affects the value of shares in a particular class or the enjoyment of rights attaching to the shares in that class is NOT a variation of class rights Greenhalgh v Arderne Cinemas Ltd – ordinary resolution passed to subdivide the members shares to increase the number of votes they held. This did not vary Greenhalgh’s class rights because his shares still retained the same voting rights (1 vote per share). White v Bristol Aeroplane Co – a bonus issue of shares to ordinary SH that diluted the voting rights of pref SH was deemed NOT a variation of class rights attaching to the preference shares (HOWEVER, directors cannot exercise their power to issue shares for an improper purpose ( section 181(1)(b) - civil or section 184(1) - criminal) and a share issue undertaken for the purpose of manipulating voting control in a company will infringe this) - Section 246C sets out the certain actions that are taken to vary class rights – see page 147 for table. - Section 246C(6) stipulates that if a company issues new preference shares that rank equally with existing preference shares, this is a variation of class rights. More examples and the resolutions that need to be held are in the table on page 147, and they are listed in section 246C.
