Australian Corporation Law

INCORPORATION

Ø  Company is regarded as a separate legal entity, a separate artificial person

Ø  The company’s ‘brain and limbs’ are the human persons who perform tasks on behalf of the company.

Ø  Case: Salomon v Salomon

Ø  Incorporation shields members from the company – veil of incorporation

Ø  Circumstances when a court may lift the corporate veil:

o   Common Law

§  Fraud – if company is used as a vehicle for fraud

§  Re Darby’s Case

§  Avoiding legal Obligations - if company is used as a sham so as to avoid an existing legal obligation under contract or statute

§  Gilford Motor Co Ltd v Horne

o   Statute

§  Director’s duty to prevent insolvent trading by company: S588G (director is personally liable)

§  Uncommercial transactions: S588FB – insolvent company has disposed of assets prior to the commencement of winding up

§  Officers guilty of offence if the company finances dealings in its shares – S260A

Ø  S117 – to incorporate a company lodge application with ASIC

Ø  S117(5) – obtain consent of directors and members

Ø  Section 45A(2) – requirements of a small proprietary company – to satisfy 2 out of 3 requirements

o   (a) consolidated annual gross operating revenue less than $25 mil

o   (b) consolidated gross assets less than $12.5 mil ; or

o   (c)Employ less than 50 full time employee

Ø  Section 45A(3) – Large proprietary – more then those mentioned above.

REPLACEABLE RULES / CONSTITUTION

      Constitution (internal rules) control the relationship between the company as a separate legal entity and its members and officers

      After 1 July 1998 – company can choose to:

o   Use replaceable rules – s141; or

o   Adopt own constitution 136(1); or

o   Combination of constitution and replaceable rules – s134

      Replaceable rules govern internal administration and management of companies

      S141 provides an index to the sections that are replaceable rules

o   E.g. s198A(1) – business of a company is to be managed by or under the direction of the directors

      Replaceable rules will apply unless modified or displaced by the company’s own constitution – S135(2)

      A company’s constitution and replaceable rules that apply to the company have the effect of a contract:

o   Between the company and each member – S140(1)(a); and

o   Company and each director – S140(1)(b); and

o   Member and each member – S140 (1) (c )

      Contract between company and member – company can take action against its members to force them to comply with the relevant provisions in the constitution if they are unwilling to do so.

      S140(2) – member not bound by a modification to the constitution made after the date on which they became a member if it increases their liability to the company – unless they agree in writing.

      contract between company and director – contractual effect

      s136(2) – special resolution to adopt, modify or repeal company’s constitution