Corporate( Law(( Summary( Reference:(Lipton,(Herzberg(and(Welsh,(Understanding+Company+Law,+16 th (edn+ (Thomson(Reuters(2012).(

Transcription

1 Corporate( Law(( Summary( Reference:(Lipton,(Herzberg(and(Welsh,(Understanding+Company+Law,+16 th (edn+ (Thomson(Reuters(2012).(

2 What is a Corporation?... 6 What Regulates Corporations?... 7 What is ASIC?... 8 ASIC S FUNCTIONS AND POWERS... 9 Registering a Company PROCEDURE Limits on Size The Final Step REGISTRATION: CHOOSING A COMPANY NAME Can I Remove the Limited / Ltd Part of the Name? Is a Name Available? Can I Reserve a Particular Name? Can I Change My Company s Name? Publication and Display EFFECTS OF REGISTRATION LIFTING THE VEIL OF INCORPORATION (BY STATUTE) LIFTING THE VEIL OF INCORPORATION (AT COMMON LAW) LIFTING THE CORPORATE VEIL OF GROUP COMPANIES Types of Companies CLASSIFICATION ACCORDING TO LIABILITY OF MEMBERS Company Limited by Shares Company Limited by Guarantee Unlimited Company No Liability Company DISTINCTION BETWEEN PUBLIC AND PROPIETARY COMPANIES DISTINCTION BETWEEN LARGE AND SMALL PROPRIETARY COMPANIES. 27 Advantages of Being a Small Propriety Company ASX LISTED COMPANIES HOLDING AND SUBSIDIARY COMPANIES Ultimate Holding Company Wholly Owned Subsidiary Related Bodies Corporate Replaceable Rules

3 The Company Constitution Restrictions on Altering the Constitution Objects Clause THE COMPANY S CONSTITUTION AS A CONTRACT Contracts with the Company ORGANIC THEORY Agency EXECUTING CONTRACTUAL DOCUMENTS ASSUMPTIONS Customary Authority CONTRACTS MADE BEFORE COMPANY REGISTRATION COMPANY PROMOTERS Active Promoters Passive Promoters Promoter Duties Fundraising and Disclosure DISCLOSURE DOCUMENTS Prospectuses DISCLOSURE EXEMPTIONS Small Scale Personal Offers (ss 708(1)-(7)) Sophisticated Investors (ss 708(8), (10)) Senior Managers (s 708(12)) Existing Security Holders (s 708(13)(a)) Rights Issues (s 708AA) RESTRICTIONS ON ISSUING SECURITIES Minimum Subscription ASX Listing Disclosure Document Expiration Advertising Liability for s 728 Misleading and Deceptive Disclosures Defences Against s What is a Share? Share Options Stock Bearer Shares/Share Warrants Share Capital

4 Contractual Rules of Issuing Shares Offer and Acceptance Consideration Improper Share Issue Share Classes Preference Shares Varying Class Rights Certain Actions Taken to Vary Class Rights Setting Aside a Class Variation Share Capital Reduction SHARE BUY-BACKS Equal Access Scheme Buy-Back Selective Buy-Backs On-Market Buy-Backs Employee Share Scheme Buy-Backs Minimum Holding Buy-Backs The 10/12 Limit INDIRECT SELF-ACQUISITIONS The Meaning of Control FINANCIAL ASSISTANCE Share Transfer Instrument of Transfer Procedure for Transfer Unregistered Transfers Refusal to Register a Transfer or Transmission Unsolicited Offers to Purchase Off-market Shares SHARE TRANSMISSION Dividends Balance Sheet Test for Payment of Dividends Membership MEMBER REGISTER SHARE CERTIFICATES LIABILITY OF MEMBERS ENDING MEMBERSHIP Borrowing Money

5 DEBENTURES Trust Deed and Trustee for Debentures Borrower Duties Guarantor Duties Trustee Duties Rights of Debenture Holders Debenture Holder Register PERSONAL PROPERTY SECURITIES Definitions Attachment Perfection Circulating Security Interests Priority of Security Interests Vesting of Security Interests INVALIDATION OF SECURITY INTERESTS Voidable Antecedent Transactions Invalidation of Circulating Security Interests Security Interests in Favour of Officers: Company Directors DE FACTO DIRECTORS SHADOW DIRECTORS ALTERNATE DIRECTORS CHAIR THE BOARD OF DIRECTORS Notice of Board Meetings/Quorum Minutes Resolutions APPOINTMENT OF DIRECTORS DISQUALIFICATION Automatic Disqualification Court-Ordered Disqualification REMOVAL OF DIRECTORS REMUNERATION OF DIRECTORS Termination Benefits Company Secretary

6 RESPONSIBILITIES OF THE SECRETARY Directors Duties WHO OWES CORPORATIONS ACT DUTIES? FIDUCIARY DUTIES CONFLICT OF INTEREST AND DUTY OF DISCLOSURE Self-Interested Transactions Misuse of Company Funds Diverting Company Contracts Financial Benefits to Directors of a Public Company Financial Benefits to Related Parties Disclosure DUTY OF GOOD FAITH AND PROPER PURPOSE Best Interests of the Company Proper Purpose IMPROPER USE OF INFORMATION Misuse of Confidential Information IMPROPER USE OF POSITION DUTIES OF CARE, SKILL AND DILLIGENCE Business Judgment Rule DEFENCE: RELIANCE ON OTHERS DEFENCE: RESPONSIBILITY FOR ACTION OF DELEGATES REMEDIES Civil Penalties Oppressive or Unfair Conduct (s 232) Injunctions (s 1324) Winding Up Criminal Offences Proceedings on Behalf of the Company Insolvent Trading RATIFICATION What is a Corporation? 6

7 Corporations Act 2001 (Cth) s 57A(1) Subject to this section, in this Act, corporation includes: (a) a company; and (b) any body corporate (whether incorporated in this jurisdiction or elsewhere); and (c) an unincorporated body that under the law of its place of origin, may sue or be sued, or may hold property in the name of its secretary or of an office holder of the body duly appointed for that purpose. (2) Neither of the following is a corporation: (a) an exempt public authority; (b) a corporation sole. A 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. 1 What Regulates Corporations? 1 Corporations Act 2001 (Cth) s

8 ASIC is a body corporate, headed by a chairman with between three and eight government appointed members. 2 It is compulsory for ASIC to hold an office and employ a Regional Commissioner in each State and Territory. 3 ASIC s stated goals are: It strives to maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy; Promote the confident and informed participation of investors and consumers in the financial system; Administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements; Receive, process and store, efficiently and quickly, the information given to the Commission under the laws that confer functions and powers on it; Ensure that information is available as soon as practicable for access by the public; and Take whatever action it can take, and is necessary, in order to enforce and give effect to the laws that confer functions and powers on it. 4 ASIC S FUNCTIONS AND POWERS ASIC s functions and powers are derived from the Corporations Act and the ASIC Act. 5 However, ASIC also possesses some extra functions as well, as enumerated in s 11(2), (3) of the ASIC Act: To provide such staff and support facilities to the Takeovers Panel and the Companies Auditors and Liquidators Disciplinary Board; To advise the Minister about changes to the corporations legislation (other than the excluded provisions, defined in s 5(1) as the functions set out in s 2 Australian Securities and Investment Commission Act 2001 (Cth) ss Ibid ss 95, Ibid s 1(2). 5 Ibid s 11(1). 9

9 12A: insurance and superannuation; and monitoring and promoting market integrity and consumer protection in relation to the Australian financial system as well as the payments system) that, in ASIC s opinion, are needed to overcome, or would assist in overcoming, any problems that ASIC has encountered in the course of performing or exercising any of its functions and powers; To advise the Minister and make recommendations about corporate law reform proposals put forward by the Corporations and Markets Advisory Committee. The treasurer may give written directions to ASIC about the policies it should pursue and the priorities it should follow. 6 ASIC s functions and powers may also include: Regulation of financial services and markets: For example, ASIC can direct a market licensee to suspend dealing in particular securities on the Australian Stock Exchange (ASX) and to enforce compliance with the ASX s Listing Rules. 7 Responsibility over misconduct in financial markets: under the Corporations Amendment (Financial Market Supervision) Act 2010 (Cth). Takeovers: For example, takeover bidders must lodge a bidder s statement and offer document with ASIC prior to any offer being shown to the target company s shareholders. 8 Investigative powers: A great range of investigative powers is available to ASIC to enforce compliance with the corporations legislation. 9 Bring legal proceedings: ASIC can bring civil proceedings against a person when, because of an investigation, the organisation believes that it is in the public interest to do so. 10 ASIC can also criminally prosecute where it forms the opinion that a person has committed an offence against the corporations legislation and therefore should be prosecuted Australian Securities and Investment Commission Act 2001 (Cth) s Ibid ss 793C, 794D. 8 see Corporations Act 2001 (Cth) Pt see Australian Securities and Investment Commission Act 2001 (Cth) Pt Australian Securities and Investment Commission Act 2001 (Cth) s Ibid s

10 To register their company, a person must lodge an application with ASIC using the prescribed form (Form 201). 12 The application must contain information such as: the type of company; the proposed name; name and addresses of persons consenting to be members; names addresses and date and place of birth of persons consenting in writing to be directors and company secretary; address of registered office and hours of opening; address of principal place of business; details of issued shares including whether fully paid and beneficially owned by the number on registration; whether the company will have an ultimate holding company and if so, details of that ultimate holding company, and prescribed information regarding issues of share for non-cash consideration by public companies. 13 Note: the applicant must have consents and agreements of each persons becoming the directors, secretary or members listed in the application at the time the application is lodged. 14 A company must have a registered office in Australia to which communications and notices to the company may be addressed. 15 Furthermore, the company must abide by the following provisions in relation to their registered office: If the registered office is at premises not occupied by the company, company must show ASIC the occupier s written consent to the address being used as the company s registered office. 16 Must lodge change of address no later than 28 days after the date of the change. 17 Name must be prominently displayed at registered office with words registered office Corporations Act 2001 (Cth) s 117(1). 13 Ibid s 117(2). 14 Ibid s 117(5). 15 Ibid s 142(1). 16 Ibid s 143(1). 17 Corporations Act 2001 (Cth) s 142(2). 12

11 A public company s registered office must be open to the public each business day from at least 10am to 12pm and from at least 2 to 4pm or at least 3 hours chosen by the company between 9am and 5pm each business day. 19 Limits on Size A proprietary company is not permitted to have any more than 50 non-employee shareholders, but there are no limits on the amount that a public company can have. 20 The Final Step After the application is approved, ASIC issues a certificate that says the company name, their ACN number, and the type of company they are, as well as the date of registration and the fact that the company is registered under the Corporations Act. 21 Note: these certificates are conclusive evidence that all requirements for registration have been complied with and that the company was properly registered on the date written on the certificate. 22 REGISTRATION: CHOOSING A COMPANY NAME If a company chooses, it is legal to simply have the ACN number given on the registration certificate as the company name Ibid s 144(2). 19 Ibid s 145(1). 20 Ibid s Ibid s 118(1). 22 Ibid s 1274(7A). 23 Corporations Act 2001 (Cth) s 148(1). 13

12 Note: Limited companies must have the word limited or the abbreviation ( Ltd ) at the end of the name and limited proprietary companies must have proprietary limited (or Pty Ltd ) at the end. 24 The same applies for no liability companies. 25 Furthermore, it is forbidden to use Limited or No Liability in the company name unless it is applicable to your company by law. 26 In the same vein, a public company must not use the word proprietary in its name, unless it actually amounts to a proprietary company under the legislation. 27 Can I Remove the Limited / Ltd Part of the Name? This part can be omitted in cases where the company s constitution pursues charitable purposes only and prohibits distributions to members and payment of fees to its directors, requiring the directors to approve all other payments made to directors. 28 If the company breaches these provisions in its constitution, the privilege will be lost. 29 Is a Name Available? A name is available for use by a company unless it is: Identical to a name that has already been reserved or registered Identical to a name that is included on the national business names register in respect of another person; or Unacceptable (an example of unacceptable may using the name stock broker when you are not in fact a person authorised by a financial services license 30 ). 31 Can I Reserve a Particular Name? 24 Ibid s 148(2). 25 Ibid s 148(4). 26 Ibid s Corporations Act 2001 (Cth) s 148(5). 28 Ibid s 150(1). 29 Ibid s 151(3). 30 Corporations Act 2001 (Cth) s 923B. 31 Ibid s 147(1). 14

13 A person may lodge an application to reserve a specified name if they intend to register a company. 32 If available, ASIC must reserve the name for two months (although this period can be extended to four months in total if the applicant so requests). 33 Can I Change My Company s Name? A company has the power to change its name without applying to ASIC (if passed by a special resolution within the company). 34 Again, the new name must be available. 35 However, if a company has commenced winding up, a name change will not be possible (as the members will have lost their power to pass the special resolution required for a name change). 36 Publication and Display A company must put its name and ACN number on its common seal and on all its public documents and negotiable interests 37 ( public document includes: a business letter, statement of account, invoice, receipt, order for goods, order for services or official notice, 38 but the term does not cover documents of a non-contractual nature. 39 The company name must be displayed prominently at every place open to the public and at which the company carries on business, 40 and at its registered office. 41 EFFECTS OF REGISTRATION The company becomes a separate legal entity: The legal capacity and powers of the company will include the capacity and powers of an individual 32 Ibid s 152(1). 33 Ibid s 152(2). 34 Corporations Act 2001 (Cth) s 157(1). 35 Ibid s 157(3). 36 Re HDT Special Vehicles (Aust) Pty Ltd (1991) 9 ACLC Corporations Act 2001 (Cth) ss 123(1), 153(1). 38 Ibid s 88A. 39 National Education Advancement Programs Pty Ltd v Ashton (1996) 14 ACLC Corporations Act 2001 (Cth) s 144(1). 41 Ibid s 144(2). 15

14 and a body corporate. 42 Therefore, shareholders do not have a proprietary interest in the property of the company. 43 It follows that the power of a company to make a contract may be exercised by an individual acting with the company s express or implied authority on behalf of the company: 44 Common seals are optional, so entering a contract/other documents without affixing a common seal is perfectly legitimate. 45 If, however, the company chooses to use a common seal, it is a strict liability offence to use/authorise use of a seal without having the company name and ACN/ABN number on the seal. 46 The company can issue shares and debentures: as well as granting options over unissued shares; distributing the company s property among its members; granting a security interest in uncalled capital; granting a circulating security interest over the company s property; and do anything else that it is lawfully authorised to do. 47 LIFTING THE VEIL OF INCORPORATION (BY STATUTE) The main effect of registration a company is that it becomes a separate legal entity, whereby the directors are generally shielded from liability as the company itself can be sued, and as a result the courts are reluctant to delve into the reasons why a company was formed, and what for. 48 This notion is referred to as the veil of incorporation. However, the law has evolved to make way for a number of exceptions to this doctrine. Those that are contained in statute are listed below (and will be discussed in further detail later): 42 Ibid s Macaura v Northern Assurance Co Ltd [1925] AC Corporations Act 2001 (Cth) s Corporations Act 2001 (Cth) ss 123(1), 127(1), (3). 46 Ibid s 123(3). 47 Ibid s 124(1). 48 See Salomon v Salomon & Co Ltd [1897] AC 22: Held that as long as the formalities of incorporation were observed, a trader in one s own company could still gain limited liability and obtain priority as a debenture-holder over other creditors. Similarly, in Macaura v Northern Assurance Co Ltd [1925] AC 619, Macaura sold his land and timber to his company, a fire destroyed it but he could not claim it on insurance because only persons with a legal or equitable in interest in the property could do that. 16