At the end of this chapter, students will be able to:
1.Explain the concept of the corporation
2.Outline the development of company law in England and Australia 3.List the various types of corporation
4.Describe the Corporations Law scheme.
5.Outline the recent reform of company law in Australia
6.Explain the need for the introduction of the Corporations Act 2001
Historical Development of Company Law
1THE CONCEPT OF THE CORPORATION
A corporation is a body created by law, with its own legal status, and continues to exist despite changes to the individuals it represents. It can sue and be sued in its own name.
1HISTORY OF COMPANY LAW IN ENGLAND
The Companies Act 1862 formed the basis of company law in Australia prior to federation in 1901. The concept of the corporation in English law has existed since the first half of the fourteenth century, with the English monarch conferring corporate personality upon monasteries and municipal councils.
The next type of corporation developed in the field of commerce, where Royal charter created corporations under which guilds or associations of particular types of merchants operated. Members obtained a monopoly over the trade covered by the guild, but the guild itself did not obtain any rights or liabilities following incorporation. It merely provided rules within which members had to operate, and each member traded individually (and hence had no limited liability).
Joint trading was possible through the use of two types of partnership: the commenda and the societas. In a commenda, a financier provided the trader with a loan and in return received an agreed share of the trading profits. The societas operated on a similar basis to the modern form of partnership. Each partner was an agent of the other partners and each partner was personally liable for the partnership debts.
1.3The first ‘companies’
Associations of English merchants trading overseas first used the word ‘company’ during the fourteenth century. Through royal charter, these associations received certain trade monopolies over foreign territories. However, the use of ‘company’ did not mean limited liability, but just “association”.
These associations became known as ‘regulated’ companies by the sixteenth century. However, these regulated companies still operated on a similar basis to the earlier guilds. Although membership enabled participation in a particular trading venture, members of the company traded individually as sole traders.
1.4The joint stock company
Partnerships using joint accounts and joint stock started trading by the beginning of the seventeenth century. This type of company became known as a ‘joint stock company’. Well-known examples include the East India Company and the Hudson Bay Company. In addition to trading monopolies, royal charter conferred on these joint stock companies official powers of administration in foreign territories. After the completion of each overseas trading venture, the members of the company divided the joint stock and the profits between themselves. This was the beginning of the concept of the share.
Permanent joint stock financed these companies rather than finance through joint stock raised specifically for a particular trading venture.
1.5Important seventeenth century developments
Joint stock companies became less frequent as the state took greater control over administration of foreign territories, and monopolies over trade were perceived as an unacceptable restraint of trade.
Companies had acquired perpetual succession and a common seal, enabling them to have legal identity in contracts and the courts which was separate from their members.
Significant growth in domestic companies at the end of the 17th century and beginning of the 18th century were fuelled by public speculation in capital raisings. The most famous...