Company Law Notes

Topics: Corporation, Subsidiary, Holding company Pages: 25 (6305 words) Published: August 25, 2013
Chapter 2 (Topic 2): Registration and its effects

Characteristics of a company

-Companies are artificial entities with rights and liabilities separate from their shareholders or members

-s119: company comes into existence as a body corporate at the beginning of the day on which it is registered with the name specified in its certificate of registration

-This legal entity is separate from its members so assets of the company are not the assets of its members and contracts entered into by the company will create rights and liabilities that vest (giao cho) in the company and not in its members

Effect of registration

-The powers and liabilities of a company are the direct consequences of its creation as a distinct legal entity

-s124 – the legal capacity and powers of company include the capacity and powers of an individual and a body corporate.

• The powers of an individual include power to acquire and dispose of property and the right to sue.

• The powers as a body corporate under s124 include

-issue shares and debentures

-grant options over unissued shares

-distribute the company’s property among its members

-grant a security interest in uncalled capital

-grant a circulating security interest over the company’s property and

-do anything it is lawfully authorized to do so

-Because a company is a separate legal entity it follows that it may enforce its rights by suing and conversely it may incur liabilities and be sued by others

• Shareholders or members cannot sue on behalf of their company to enforce a right of the company

• Pt 2F.1A (ss236-242) permits a member or officer to seek leave (permission) of the court to bring legal proceedings on behalf of the company where the company is unwilling to do so ( statutory derivative actions (chapter 17)

• Company can be sued or sue by its own members

-A company may own property distinct from the property of its shareholders or members ( meaning that shareholders do not have a property interest in the property of the company and they do not own the company’s property: Macaura v Northern Assurance Co ltd

-s601AD(1): a company continues to exist until it is deregistered by ASIC ( even if the shareholders of a small coy died, the company would still survive and continue legal personality of the company

-s126 – the powers of a company to make a contract may be exercised by an individual acting with the company’s express or implied authority and on behalf of the company – this may be exercised without the common seal and the validity of the power is determined by the law of agency and the assumption in s129 (chp 5)

• S123(1) – optional to have a common seal.

-If a company choose to have a common seal, its name and ACN or ABN must be set out on the seal

-if a company has an ABN issued for good and services tax purposes, it may use its ABN in place of its ACN provided that ABN includes its nine-digit CAN

• It is a strict liability offence to use or authorize the use of a seal in non-compliance with these requirements: s123(3)

• S127(1) and (3) – a company may execute a document without using a common seal

Limited liability

1. Reasons for limited liability

-Limited liability is one of the main advantages of the corporate form over other form of business organization

-it means that shareholders are not personally liable for their company’s debts and the extent of shareholder’s liability depending on the type of company under s 112

• If a company has incurred obligations, it is primarily liable because its debts are separate from the debts of its shareholders

• Only when the company has insufficient assets to pay its debts that the issue of whether shareholders may be liable arises

• The liability of shareholders of coy limited by shares is limited to amount unpaid on the issue price of their shares:...
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