Discuss about the Corporations Law in Principle of LBC.
In the initial phase for the purpose of helping Harry, Meghan, William, and Kate selecting the most feasible business structure so that they can continue with their chosen business activity they have to notified about the possible structures by the use of which a business activity can be continued by them. They would be delighted to know that there are many business structures which are legally available to them as an option to start their planned business activity. The structures bring for them many forms of advantages[1]. However they must also know the form of detriments which they may face if they wish to proceed with a specific form of business structures. They have to know that out of all the business structures available to them they are only eligible to select one business structure to carry out the chosen activity of business.
The following is a list of business structures available to them
When a person selects this form of business structure he has to known that there would be no difference between their personal identity and the business which they are carrying out. The courts will consider them and the business as a single entity. A person can start sole trading as soon he or she wishes to and there are very less if any legal formalities which the person has to indulge in for carrying out the business activity. Subsequently the cost which is required to form a business structure is negligible in this situation. The structure also reduces administrative costs and also provided an opportunity to the owner to employ people to work for the business[2].
A person may select this kind of business structure where there are two or more people involved in carrying out the chosen business operations. This is because as the name suggests one single person cannot form a partnership. This structure is pretty common among friends who want to initiate a business activity. In this form of business the expertise of different form of partners and capital as well can be used together to carry out the business activity in a successful manner. However this situation may also create various conflicts between the members of the business who may not want to agree with the decision of each other all the time[3]. The business is based on a document or oral understanding termed as the partnership deed or partnership agreement. This understanding ensure that the powers duties and rights of such people are pre stated and where there is any form of dispute the members can refer to the document for guidance. The members who are often referred to as the partners are bound to each other as well as the business. This means that they are the principle and agent of the business.
Joint venture- joint venture business is carried out to give effect to a single business activity. Thus it signifies that the nature this form of business is not ongoing. The powers duties and rights of people in a joint venture are pre-stated and where there is any form of dispute the members can refer to joint venture agreement for guidance.
People select company as a business structure as it provides various unique features. The most unique of such features is that of “separate legal person” unlike any of the businesses discussed above the identity of the company is different from the identity of the people who own it. It is a corporate citizen which has been created artificially by law. The people who invest in the company can only be made liable to the degree to which they have made investments in the company[4].
Trust is a form of business which is primarily used for the purpose reducing tax obligations. In this business a trustee is appointed to take care of the business of the owners[5].
Now, as Harry, Meghan, William, and Kate are aware about the kind of business structures which they have at their disposal to selected for their chosen business activity of party planning they must be notified about how such business structures are subjected to legal provisions and the regulatory bodies which govern them.
It has already been identified above that there is no difference between the owner and the business when the selected business structures is sole trader. A sole proprietor may carry out the business in his own name and apply for an Australian Business Number. The general laws which are applicable on such business include Employment law, agency law, contract law and consumer law. The compliance with the employment legislation in Australia has to be ensured by the sole trader which is the Fair Work Act 2009 in case the trader has in place employees to work for the business[6]. In compliance with the legislation the trader also has the obligation of comply with the National Employment Standards which are set out by the Fair Work Commission. Further the trader would be liable to the acts committed by the employees in the course of employment under the rules of agency law. The provisions of contract law would make the trader liable personally when any contract has been breached by the business. The provisions of consumer law will not allow the trader to get activities which may not be considered as appropriate under the Australian Competition and Consumer Act 2010 (Cth) or they may be prosecuted by the Australian Competition and Consumer Commission[7]. It is not possible for Harry, Meghan, William, and Kate to conduct business by selecting sole trading. This is simply because the liability of William, and Kate would become unlimited which they do not want and as there are four people involved the structure will not apply.
The legal regulations which are imposed in a partnership and a joint venture are very similar to that of a sole trading structure. This is because in both these structures also the members possess same identity as the business. Thus the general laws which are applicable on such businesses also include Employment law, agency law, contract law and consumer law. In addition to the provisions of the general law the partnership structure also falls under the jurisdiction of the Partnership Acts in Australia. There are many partnership legislations in the company as all states have their own legislation. There is also a federal legislation which has been enacted in 1963 and is known as the Partnership Act 1963.
The legislations include the precise tests where a person may be deemed as the partners of a partnership business. These tests include ownership, participation in decision making and sharing of profit and losses under section 6 of the legislation[8]. Another important provision which is provided through the legislation is that the partnership will only come to existence if the purpose behind it is making profit. The legislation also governs the situation in which the partners may me jointly and severally liable to the acts and omissions of each other. One of the primary cases in relation to partnership law is the landmark case of United Dominions Corp v Brian (1985) HCA 49[9]. This case pointed out the law that the partners can also bind the business to any contract or activity which they have carried out on behalf of the business by them even where the action was not within the scope of power which has been provided to them by the partnership deed[10]. This situation will take place where the partner was in regular dealing with the other party and the party in relation to the specific transaction did not have any idea that the authority has been abused ad relied on the authority to get into a dealing. It want be feasible for Harry, Meghan, William, and Kate to conduct the party planning business through partnership structure. Although the structure would be applicable as there are more than two people involved in it, the application would not be able to fulfill the wish of William and Kate to minimize their risk as they would have unlimited liability under this structure. In the same way Harry and Meghan would not be able to transfer the earning of the business of their part to charity as they may face difference in opinion from William, and Kate.
The structure of company in Australia is imposed with various provisions of law. The degree of compliance which is required by a proprietary company is less than the degree required in case of a public company. The regulatory body which is responsible for governing issues related to corporations in the country is Australian Securities and Investment Commission. The body has been incorporated through the Australian Securities and Investment Commission Act 2001[11] and is also responsible for governing major parts of the Corporation Act 2001 (Cth)[12].
The commission has taken several actions against those who have failed to comply with the rules laid down by the CA. The commission is a watchdog which keeps an eye of the activities of the corporations functioning in the country. The few cases where the commission has been able to punish organizations and directors for not complying with law are cases of ASIC v Forrest and Fortescue [2012] HCA 39[13] and Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited (prov liq apptd) – [2016] FCA 42[14].
The CA provides for the definition of key legal terms such as “directors” and “financial products”. It also states the ways and forms in which a company can be registered under section 112 of the CA[15]. the duties of the directors and various other obligations such as disclosure obligations and maintaining the integrity of disclosure documents are also provided through the CA. The CA also states various remedies and sanctions for the directors of the company. The ACCC also governs the way in which an organization behaves in the market palace and does not indulge in any anti competitive activities.
Through the analysis of the various form of structures which Harry, Meghan, William, and Kate have at their disposal I have come to a conclusion that the company specifically a proprietary company is the most feasible business structure they may select to carry out a business activity. My conclusion is based upon the features of the company and the demands of Harry, Meghan, William, and Kate.
The company structure would ensure that Harry and Meghan are able to access the required capital for the business activity as they can include William and Kate as the shareholders. William and Kate can further fulfill their wish not indulging into active management by becoming non-executive directors or mere shareholders. They will be able to minimize the risks from the business through the feature of limited liability and will only be subjected to liability to the degree of contribution made by them. Further through a proprietary company the level of compliance would be low and Harry and Meghan would be able to transfer their earnings to funding programs to reduce homelessness which they could not have done in a public company practically. This is because the shareholders are able to ratify any actions of the directors which would not be practical in a public company as the investors would be only looking for profit making.
We have already selected the business structure of a proprietary company for Harry, Meghan, William, and Kate through which they can carry out their business activity of party planning and also ensure that that can fulfill their individual expectations and needs in relation to the business. Through this section Harry, Meghan, William, and Kate would be notified about their rights duties and obligations which they will be provided with under company law.
As discussed above the CA deals with almost all matters related to corporation. The same legislations provide rights and liabilities to the owners. Section 9 of the legislation provides that a director in a person is his responsible for governing the operations of the company[16]. The directors are provided with utmost powers to make the company function. As the word denotes the directors have the power to direct the company in any way they want. The directors are provided with remuneration by the company for managing its affairs. The remuneration of directors in Australia is subjected to the two strike rule[17]. However where such immense powers are provided to the directors the responsibilities and liabilities which is to be imposed on them have to balance the level of power provided to them as after all they are the agents of the company who are also in a fiduciary relationship. The directors have the obligation to discharge their duties and powers with due diligence and care under section 180(1) of the CA[18]. this means they must indulge in informed decision making, participate in business meetings, comply with law and ensure that their actions are in compliance with a reasonable directors in the same shoes. In the case of Australian Securities and Investments Commission v Cassimatis (No 8) (26 August 2016) – [2016] FCA 1023 the court prosecuted the only shareholders and directors of the company under this section as they had violated the law and led to reduction in the company’s reputation[19].
Under section 181 a very flexibly duty is imposed in the directors whereby them must act in good faith and proper purpose for ensuring the best interest of the company. The best interest of the company signifies that the actions should be towards making profit and also ensuring the interest of the other stakeholders in the organizations. The directors should never pursue personal interest over interest of the organization or else they may be violating the duty under this section as well as the duty under common law which is to avoid any conflict of interest. This situation took place in the case of Australian Securities & Investments Commission v Rich [2009] NSWSC 1229[20]. The directors have to inform the other directors who form the board in the company in a situation where a transaction involves personal interest under provisions of section 191. The directors have been provided a position in the company through which they can make the company indulge into any act. Thus under section 182 the directors must not utilize the position in a way which is contrary to the best interest of the company[21].
Like that of position under section 183 the directors must also not utilize the information obtained in a way which is contrary to the best interest of the company[22]. Being the directors it is also the duty of a person to ensure that the interest of the creditors are protected and while doing so the directors should not carry out trade when the company has become insolvent of may likely become insolvent because of the trade under section 588G[23]. If the directors ignore compliance with the section that can be subjected to personal liability as was done in the case of Australian Securities and Investments Commission v Plymin, Elliott and Harrison (2003) 175 FLR 124[24].
The violation may also result in civil penalty in relation to which a declaration may be made by the court under section 1317E[25]. The ASIC can apply before the court for pecuniary penalties to be imposed on the directors under section 1317H or making them liable personally to the investors under section 1317S. The ASIC may also make a claim for banning them from future management by invoking section 206C of the Act[26]. The ASIC was successful in doing so in the case of [ASIC] v Lindberg [2012] VSC 332 where the ban was for two years and the fine was $100000[27]. Thus Harry, Meghan, William, and Kate have to be mindful of such provisions.
[ASIC] v Lindberg [2012] VSC 332
ASIC v Forrest and Fortescue [2012] HCA 39
Austin R.P. & Ramsay, I., Ford’s Principles of Corporations Law, Butterworths, Australia, 16th edition, 2014.
Australian Competition and Consumer Act 2010 (Cth)
Australian Securities & Investments Commission v Rich [2009] NSWSC 1229
Australian Securities and Investment Commission Act 2001 (Cth)
Australian Securities and Investments Commission v Cassimatis (No 8) (26 August 2016) – [2016] FCA 1023
Australian Securities and Investments Commission v Plymin, Elliott and Harrison (2003) 175 FLR 124
Australian Securities and Investments Commission v Sino Australia Oil and Gas Limited (prov liq apptd) – [2016] FCA 42.
Bottomley S, Hall K, Spender P, and Nosworthy B, Contemporary Australian Corporate Law 1st edition 2017 Sydney Cambridge
Ciro T, Symes C, Corporations Law in Principle LBC Thomson Reuters, Sydney, 9th edition 2013
Corporation Act 2001 (Cth)
Fair Work Act 2009 (Cth)
Hanrahan, P., Ramsay I., Stapledon G., Commercial Applications of Company Law. Oxford 18th edition 2017
Harris, J. Hargovan, A. Adams, M., Australian Corporate Law LexisNexis Butterworths 5th edition, 2015.
Lipton, P., and Herzberg, A., Welsh, M, Understanding Company Law, 18 edition Thomson Reuters 2018
Partnership Act 1963 (Cth) s 6
Richard Baumfield, Richard P. Copp, Robert Cunningham, Paul Harpur, Alex Wong, Company Law: An Interactive Approach. (John Wiley & Sons Australia, 2016)
United Dominions Corp v Brian (1985) HCA 49
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