Discuss about the Law of Business Organization.
The assignment is in two parts Part I & Part II. Part I contents the constitution of the company. The company should create a constitution of the company before its registration. For the registration, the company should make an application before the ASIC. The contents of the constitution of a company have been referred herein. The owner of the company should make the constitution under these headings. The internal management of the company, i.e., the contract between the company with its directors or secretary or any other officers, etc. is guided by the Constitution of the company and the replaceable rule. The officers are not bound to abide by such rules unless he gives his consent in writing. The company should have issued such ordinary or preference shares that have been mentioned in the constitution.
Part II consist of the historical background of the Corporation Act and the reasons behind the incorporation of section 198A, 191 and 250R (1) & (2). Section 198 states the power of the directors of the company. Section 191 states the duties of the directors and section 250R (1) & (2) of the corporation act states about the AGM of the company. The main reason behind the inclusion of these sections is to create some responsibilities amongst the members in order to make the business affairs of the company work smoothly.
Constitution of the company is created by incorporation these following points mentioned below:
The company is a place where some persons come together to form an association, where they willingly bring about money or something which is equivalent to money to a common stock and uses it for a similar purpose. A company in terms of law can be said as an individual person who has its own legal entity and is not bound by its members. This means that the company can purchase or sell any land or any other assets in its own name. The owner of the company has to give an application to the ASIC. A constitution has to be made by the members of the company at the time of registration. The persons who are willing to be a member of the company should give his consent in writing. Adoption of a constitution after registration requires presentation of a resolution or an order from the court where an order of adopting a constitution is granted. The company may alter or modify its constitution at any point of time. In a public company a meeting should be held with prior notice of two months. Public company is having much more easy process.
The contract between a member with a company, or between the director and the other member or members of the company, a company secretary with the company is determined both by the constitution and the replaceable rules. Each member or officer should perform accordingly. Any alteration of the constitution does not make it compulsory for the members to follow the changes made in the provisions unless any written consent has been given by the members. The alteration made may be for the need of acquiring some additional shares, to provide restrictions on the transfer of shares or to invest money in the company until and unless the company makes a decision to change from public to private company or some other company is taking over a company. Hence, it can be concluded that the internal management of the company is to be governed by the replaceable rules as well as the constitution.
The capital of the company which is divided into equal parts is called shares. Issuing shares is the most important procedure of raising funds for the company. This fund gives a financial base and support to the company[1]. There are two kinds of shares ordinary shares and preference shares. The ordinary shares are the shares which do not have any preference right in terms of payment of the dividend or the repayment of the capital made by the company. These type of shares are issued before the issuance of the preference shares or any other securities and the dividend are paid to the ordinary shareholders only when the company has made any profit and a declaration has been made for repayment. The maximum risks are borne by the ordinary shareholders. They have an advantage as they have the voting rights in the company and can control the management or the business affairs of the company.
Shares carrying preferential rights and certain advantage in respect of the dividend and the return of the capital can be termed as preference shares. There dividend paid on preference shares have a fixed rate and is paid before the ordinary shareholders or any other securities. The preference shareholders at the time of the winding up of the company should be provided with the dividend prior to the ordinary shareholders. If the constitution sanctioned any right then there can be issuance of the preference shares in respect of some matters like taking part in the profits, payment of cumulative and non-cumulative dividends. The preference shares are always useful to attract investors to invest in the shares of the company. The investors always get attracted by the rates of dividends provided in the preference shares. The company can also issue redeemable shares and the condition made by the company is that dividends paid on the shares are liable to be redeemed when the company will think appropriate, (Perpetual, 2016). The preference shares increase the monetary goodwill of the company.
The Corporation Act 2001 can be called as the corporation act as well[2]. This act has emerged because of the Commonwealth of Australia. The popular judgment which has been given in the famous case of New South Wales v Commonwealth has given birth to the corporation act. Every business organization of Australia is guided by the corporation act. The corporation act is considered to be the largest statute in the world. From the starting of a new business organization to its winding up, every rule has been prescribed in this act.
The powers of the directors have been described in section 198A of the Corporation Act. The directors of a company are collectively called the Board of directors. Individually none of the director possess any power or can carry out the same[3]. The company has authorized the board to execute all specified powers and can carry out all prescribed work that the company being an individual could have performed[4]. Any director can only carry out a work if any authorization has been given to him by the board. The most important power that the directors have is to control the workings of the company in a complete sense. The directors are the one who are responsible for all the business affairs of the company. The directors are having the authority to appoint a new director of the company to fill up the vacancy of the board[5]. The board of directors has the power to allot shares and debentures of the company and also issue the same. It also has the capacity to decide the rate of the dividends that has to be paid amongst the shareholders. The directors are authorized to take loan as and when required by the company and can carry out any such act with accordance to the limit of the authority they have. The incorporation of this section in the act helps the director to control the internal management of the company so that the business of the company should proceed smoothly[6].
The duty of the directors has been mentioned in this section of the corporation act. The incorporation of this section is beneficiary because it helps in maintaining of the trust between the directors. This trust makes them to work with honesty and saves the internal information as well as the assets of the company which helps the business to flourish. The directors have the duty to attend the meetings of the board on a regular basis[7]. They are supposed to disclose any such facts in which there is any personal interest or any such information if it is related to the company or its affairs, that is they should act honestly. Hey may not disclose any fact that is related to his remuneration or if he is acting as a guarantor of the company. In failing of this duty, he will be liable for the offence of the breach of trust and negligence. None of the director has the power to act beyond the limit of the authorization that has been granted to him by the company. The directors cannot conflict any personal matter with the interest of the company and should comply with all the statutory provisions of the company.
The section 250R(1) & (2) of the said act states about the Annual General Meeting (AGM). The annual general meeting takes place for a discussion about a certain specified matter concerned to the business of the company or any such matter that the board of directors may think fit. The notice about the AGM is to be given to all the members of the board. The notice should specify the timing, venue for the AGM and the matter which is going to be discussed in the meeting. The meeting is always to be held during the business hours. To change the timing of the further meetings of the board, a public company can pass a resolution in the meeting and the members of the private company can discuss about it and fix the time by the expressed opinion of all the members. Any matter which is relevant for the company benefit is to be discussed in the AGM. But the main issues of discussion should be the annual financial report of the company for the said year, directors’ report, the report of the auditor about the company’s financial position[8]. The auditors are also expected to mention all the financial issues of the company in his report like if there is any loan taken by the company or any outstanding money has to be mentioned in the report. The reason for the inclusion of this section is that the directors should have the complete knowledge of the financial position of the company so that they can manage it accordingly for the benefit of the company business.
ASIC, 2016. Constitution and replaceable rules. [Online] Available at: https://asic.gov.au/for-business/starting-a-company/constitution-and-replaceable-rules/.
ASIC, 2016. Directors. [Online] Available at: www.asic.gov.au › … › Insolvency › Insolvency for directors.
ASPI, 2016. Company Constitution. [Online] Available at: https://www.aspi.org.au/about-aspi/company-constitution.
Aspi, 2016. Company Constitution. [Online] Available at: https://www.aspi.org.au/about-aspi/company-constitution [Accessed 20 September 2016].
Asx, 2016. Corporate Governance. [Online] Available at: www.asx.com./documents/asx-compliance/cg_principles [Accessed 20 September 2016].
Asx, 2016. types of shares. [Online] Available at: www.asx.com.au/products/shares/types-of-shares.htm [Accessed 20 September 2016].
Austrade, 2016. Australian Trade Commission. [Online] Available at: https://www.austrade.gov.au/Annual_Report_2010-11/03_management.html [Accessed 20 September 2016].
COMPANYDIRECTORS, 2016. General duties and responsibilities. [Online] Available at: https://www.companydirectors.com.au/Director-Resource-Centre/.
Companydirectors, 2016. General duties and responsibilities. [Online] Available at: https://www.companydirectors.com./Director-Resource-Centre [Accessed 20 September 2016].
CORPORATE, 2016. Corporation Act 2001. [Online] Available at: corporate.laws.com/corporations-act-2001.
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Epublications, 2016. Director’s powers and duties. [Online] Available at: epublications.bond.edu.au › Law › LAW_BOOKS › 2 [Accessed 20 September 2016].
Kluwer, W., 2015. Commercial Applications of Company law. [Online] Available at: https://lib.oup.com.au/he/samples/hanrahan_CACL_sample.pdf.
Kluwer, W., 2016. Corporate and Commercial law. [Online] Available at: www.wolterskluwer.cch.com.au/legal/corporate-and-commercial.
LEGISLATION, 2016. Corporation Act 2001. [Online] Available at: https://www.legislation.gov.au/Details/C2014C00519.
Legislation, 2016. Corporation Act 2001. [Online] Available at: https://www.legislation.gov.au/Details/C2014C00519 [Accessed 20 September 2016].
MKYSUGAR, 2016. Corporation Act 2001. [Online] Available at: www.mkysugar.com.au/news/Documents/13-07-Notice of Annual Gener.
Perpetual, 2016. Australian shares. [Online] Available at: https://www.perpetual.com./Investments/Australian-Shares [Accessed 20 September 2016].
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