Corporations Limited And Securities Legislation

The Historical Background and the Reason for Inclusion of Section 198A in the Corporation Act

Discuss about the Corporations Limited and Securities Legislation.

Proprietary company can be considered as the private company whose shareholders are liable with a limited number of shares to pay off the company debts. The company needs to comply with certain regulations, restrictions and requirements, one of which is that the company needs to have at least one director residing within Australia. The company also needs to have a minimum of one shareholder but with the maximum limit of 50 non-employee shareholders. The company also must possess a registered office at a valid physical address of Australia. A proprietary office in Australia can be registered either by direct deal with the Australian Securities and Investment Commission (ASIC) or through the help of ASIC agents in exchange for a registration fee of $469. In case of registering a company with the help of an agent, an additional amount of minimum $50 needs to be paid as a service charge. Additionally, the internal management of the company needs to be managed by integrating both the set of replaceable rules and constitution. The Section 134 and 135 of the Corporations Act 2001, states that a corporation can handle the internal management of the company by applying the replaceable rules as per the Corporations Act and by adopting the constitution either on registration or after the registration based on the requirements.

The adoption of the constitution primarily takes place before the company’s registration as it requires a contract to be formed by the members, the directors and the company secretary with the company as well as among themselves. The adoption of the constitution on registration is applicable only if the registered member agrees to adhere to the terms of the constitution in writing. The constitution can also be adopted after the registration only if a special resolution has been passed by the company. However, the replaceable rules can be considered as the framework to control over the internal management of the company according to the Corporation Act, especially in case when the sole director and shareholder are the same person. Additionally, the section 135 of the Corporations Act 2001, states that only a certain segment of companies are applicable under the replaceable rules. The section 135(1)(a)(i) states that the company, which is registered after 1^st of July 1998 can apply for replaceable rules. According to 135(1) (a) (ii) the company who has repealed their constitution the day after its registration before 1^st of July 1998 is also applicable under the set of replaceable rules. In addition, 135(1) (b) also states that the replaceable rules are primarily applicable for the proprietary companies, while the mandatory rules are made applicable for the public companies based on the pre-specified standards.

The Historical Background and the Reason for Inclusion of Section 191 in the Corporation Act

The section 254 (a) (2) of the Corporation Act states that a company has the power to issue shares of the company. In accordance to this, the section 124 (1)(a) also illustrates the statutory ability and authority of the company to repeal or issues the shares of a company.

In any organization, the directors have the crucial role to direct the members to perform with utmost efficiency and diligence. The members in the general meeting are considered to be the crucial players of a company and hence needed to be managed well. In such cases, the majority of the shareholders agreeing to a particular perception were considered the ultimate decision for the company’s operations and the members had to agree to it. This process of decision-making affected the and proper functioning of the company to a large extent. Therefore, the directors as a part of the constitution have been allocated with the essential role of managing the business perspectives according to the Corporations Act 2001, to ensure effective functioning of the company in the long run. Therefore, the section 198A has been included in the Corporation Act, for the directors to realize their powers and duties.

Moreover, the directors are responsible for evading any kind of fraudulent activities, which is against the law of the company. The section 198A in the Corporation Act also states that the directors are allocated with the special powers to manage the company. In case of proprietary, the directors or the shareholders are liable to carry out all the powers and borrow money, issue shares and debentures. In addition, the liable directors or the shareholders can accept, sign and endorse the negotiable instruments. The directors are also liable to exercise the general duties, restricted to perform trade with the insolvent companies and maintain the record of the company accurately. In case, if the company is not able to pay off the debts, the company will be considered as an insolvent. Therefore, the directors should be able to understand and anticipate the financial position of the company. In addition, the directors will also need to maintain the business transactions with accuracy. The directors failing to meet these obligations will be not considered liable under the Corporations Act.

According to the section 191(1) state that a director with material personal interest related to the company affairs will need to provide other directors with a notice if any kind of conflict is perceived. It also illustrates that if any kind of offense is evidenced to have been made by the director with the material personal interest will be strictly liable for the same. The section 191(2) of the Corporations Act specifies the exceptional conditions in which the directors do not require to issue the notice of interest.

 It also explains that the directors of a proprietary company need to be aware of the extent and nature of interest along with its relation with the company affairs. This section has been included in the corporation act because in-spite of all the control being in the hands of the member director, he is bound to take the assistance of the other directors in cases of material personal interest and the associated company affair. However, the ultimate decision making power lies with the member director. Including this section in the Corporations Act safeguards the member director from the liability that he might have to incur as a result of ineffective or wrong decision.

The section 250R(2) of the Corporations Act, states that the AGM of a company will need to obtain the Vote on the adoption of the remuneration report.The purpose of initiating the section 250R (2) is to enhance the level of accountability in remuneration of the directors. It also aims at encouraging the shareholders to maintain accountable decision, thereby evading the conflict of interest related with the process of remuneration. Additionally, in the annual general meeting the remuneration report needs to be voted by the shareholders. In this regard the section 300A of the Corporations Act refers that the remuneration report complies with the annual directors’ report, which comprises the remuneration, Payments and policies of the directors or the governing head.

However, the section 250R (3) states that the vote is advisory and hence do not bind the company or the directors. In order to avoid the conflict of interest with the key management personnel who are voting for their remuneration, the directors and other related parties holding the shares are not allowed to vote on the AGM’s Remuneration Report. As per the voting procedure the shareholders are briefed on the contents of the Remuneration Report, which entails the salary and bonus of the directors but receives above 25% vote going against the perspective of adopting the report. Both these sections have been included in the Corporations Act in order to help the directors in making the decision of whether the remuneration report of the AGM needs to be adopted.

ALII, 2016.Corporations Act 2001 – Sect 141.Commonwealth Consolidated Acts, viewed 9 September 2016 <https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s135.html>

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