Company Director Resignation, Removal, And Operations

Director’s Removal

Question:

Discuss about the Law of Business Organisation for Economic and Labour Relations.

The company to which the said constitution applies is a private limited company which is named XYZ Private Limited.

Internal Management of the Company

The internal management of the XYZ Private Limited is to be regulated by the rules of the Corporation Act 2001 that are applicable to the company in the form of replaceable rules and the Constitution of the Company (Kershaw, 2012). Thus, both the replaceable rules and the Constitution of the Company will together govern the internal management of the company. The said rule is allowed under the section 135 of the Corporation Act 2001. The said Constitution makes it clear that it has the inherent power to make changes and alter the replaceable rules following a fixed stipulated procedure and non-compliance with the replaceable rules is not to be deemed to be in violation of the Corporation Act 2001.

Purpose

The primary purpose of establishing the said company is to allow the manufacture and retail of consumer products in the Australian market at reasonable prices and cater to all classes in the society making available the best quality consumer products at affordable rates (Morrison, Wilson & Bell, 2012).

Directors

The company may appoint a director who is responsible for the internal affairs and management of the company in a general meeting by a simple resolution. However, the said director who is appointed by the company has the authority to appoint other directors (Latimer, 2012). However if an director is appointed by other directors on emergence basis, the directorship ceases to exist If the same is not confirmed by a resolution in a company general meeting within 2 months of appointment.

Remuneration of Directors

The company decides the remuneration of the directors in a meeting by a resolution. The said remuneration includes many benefits and incentives which the director of a company is entitled to as a part of his salary (Winterton, Glass & Thomson, 2012).

Additionally, the company is also entitled to pat for the directors travelling that may be incurred while attending board meetings and conferences in other cities on behalf of the company or for every travelling which is in connection with the company’s work operations.

Director’s Removal

A director of the company can resign from his post by giving a written notice of the same in the company’s registered office. However, if the members of the company are unhappy with the management skills of the director or believe that the director has failed in his duties, they may remove a director by a resolution passed in the general meeting (Redmond, 2012). In the same meeting, appointment for a new director can also be made by a resolution. The appointment of a director can also be made by the other directors present in the company who are duly appointed following the proper procedure to appoint a director. The directors of a company can appoint a managing director from amongst themselves by a simple vote at the board meeting and the managing director will be the primary individual responsible for the working and internal affair of the company (Hill, 2012).

Power of the Managing Director

Power of the Managing Director

The directors of the company who elect the managing director confer a number of exclusive rights on the managing director like signing on behalf of the company, being the company’s face and attending all conference and international meetings on behalf of company. However, in case the managing director acts beyond his authority, the directors have the right to revoke the powers which a managing director possesses (Healey, 2012).

Appointment of other employees

The appointment of other employees like the managers, secretary, accountant and lawyers depend on the terms and conditions which the directors of the company decide. However, the directors are restricted from wrongfully appointing a relative or a friend for a position for which the relative or the friend is not qualified to hold (Wells, 2012).

Execution of Company Documents

If at any time, the said company only has one or sole director and no secretary, then the company’s sole director can execute a document for the company without fixing the common seal in it. Additionally, the director can also execute a document on behalf of the company by fixing the common seal and witnessing the same (Carey, Knechel & Tanewski, 2013).

Meeting of the Directors

A director meeting which is usually referred to as the board meeting can be called by given a notice at least 14 days prior to that date fixed for the said meeting. The notice needs to be given to each director individually. When there is a managing director, it is the duty of the managing director to check whether the notice of board meeting has reached all directors. The notice of the board meeting has to state the issues and problems which are to be raised at the board meeting. At the board meeting, the directors may appoint a chairperson from the director to hold and supervise the board meeting (Carey, Knechel & Tanewski, 2013). The period for which the elected director holds his office as a chairperson can be fixed at the time of the meeting. Unless the director’s determine otherwise, the quorum for a board meeting is at least two directors to be present physically and the said quorum is a pre-requisite for any valid board meeting. In case, the board meeting is without quorum, any decisions and laws made in such a board meeting will be invalid. In the recent time, the company has allowed directors to attend board meetings via Skype and video calling.

A resolution is passed when the number of director who are entitled to vote, vote in majority about a concerned issue. Thus, the majority vote becomes a resolution. The chairperson has a veto vote or a casting vote in case the votes are equal in number.

There are certain situations in which a director or a chairperson is not allowed to vote for example when the said director or chairperson has a conflict of interest in what is being decided. In such a case, if the votes are equal, a separate meeting is called for to discuss the said matter and take vote again for a valid and unbiased resolution (Harpur, French & Bales, 2012).

Appointment of other employees

Shares

The company has adopted the follow all the rules of Corporation Act 2001 in the form of replaceable rules and thus the company has the authority to issue shares under section 124 of the Corporation Act 2001. This authority includes the power of the company to issue bonus shares, preferences shares and partly paid shares. Bonus shares are shares for the issue and grant of which no consideration or amount is charged by the company. The holder of bonus share is granted the same as an incentive from the company (Lowry, 2012). However, the rule in the Corporation Act 2001 states that a company is permitted to issue preference shares only when certain rights in relation to preference shares are mentioned and clearly stated in the company’s constitution or the said rights are approved by a special resolution. However as the company wishes to issue preference shares which are redeemable, the rights relating to the same are mentioned in the company’s constitution. These rights are as follows:-

Repayment of capital

Participation in excess profit and assets

Cumulative and non-cumulative dividends

Voting and priority in payment of dividends relating to other shares or different class of preference shares

Thus, in the company’s constitution as the rights in relation to redeemable preference shares is already mentioned, the rights need not be guaranteed by a special resolution and the company can issue redeemable preference shares as and when it wants. A preference share for the purpose of this section means shares which enjoy dividends and priority in payment of the same before the equity shareholders. The preference share capital is also returned before the equity share capital. Preference shares can be of multiple types however redeemable ones means a share which can be repaid after the expiry of a stimulated period or after giving the company issuing it a prescribed notice. The terms of repayment are declared while the redeemable preference share is issued. Thus, the said company can issue as many redeemable preference shares as and when it desires (Kershaw, 2012).

Signed: ……………………………..     Signed: ……………………………

Signature of the Director:  …………………………….. Dated: …………………………….

Section 124 of the Corporation Act 2001 discusses the legal capacity and powers of a company which is operative in Australia. The section 124 of the Corporation Act 2001 gives a company the legal capacity and power of an individual both in and outside its jurisdiction. Thus, every company operative in Australian has a separate corporate legal capacity which is distinguished from its associated living beings like the directors, managers and employees and shareholders. This also means that a company enjoys all the legal rights and freedoms which are enjoyed by a natural human being.  The said legal capacity was given to a company to establish a company as a separate legal entity which can perform many functions that can be performed by an individual person like entering contracts, suing or being sued. The said capacity also reduces the pressure from the management of the company for being sued for petty reasons as the company being considered a natural person under law can be sued itself (Marshall & Ramsay, 2012).

Execution of Company Documents

Additionally, a company is considered to have all the powers of a cooperate body which includes the powers to:-

Issue and cancel shares

Issue debentures

Grant options for unissued shares in the company

Grant security interest which also includes a circulating security interest over the company’s property (Giordano, 2011).

Arrange for the company to be recognized outside its jurisdiction area and do many such things that are permitted and considered legal in the eye of law.

The section 124 of the Corporation Act 2001 in Australia clearly states that companies that are limited with guarantee have no authority and power to issue shares. Thus, the Corporation Act 2001 with the help of section 124 gives a company operative in Australia legal capacity of a natural person and a cooperate body and also gives a company many more powers however the company is allowed to only engage in such activities and powers which are legal and permitted by the statute in Australia (Redmond, 2012).

Section 129 of the Corporation Act 2001 in Australia is related to section 128 of the Corporation Act 2001. Section 128 of the Corporation Act 2001 discusses how individuals are allowed to make certain assumptions in relation to their dealings with the company. These assumptions are usually considered to be correct and accurate. Section 129 of the Corporation Act 2001, talks about, the assumptions which are allowed to be made, when an individual deals with a company operative in Australia. The first assumption under section 129 that can be made by an individual dealing with a company is that the constitution of the company along with the replaceable rules are complied with by the company (Lanis & Richardson, 2012). Thus, the said section was established to protect an outsider who deals with the company who may not be aware of the internal working and management of the company and thus should not suffer any loss, harm or damage if the company internally fails to comply with its constitution and the replaceable rules which are required to be complied by a company.  Thus, when a company deals with an outside, the outsider is allowed to assume the company has complied with the constitution and the replaceable rules it is required to satisfy. The said section was introduced under the Corporation Act 2001 to make provisions to adopt the doctrine of indoor management in the said Act. The doctrine of indoor management states that an individual dealing with a company need not inquire about the company’s internal management and can presume that the company has complied with its constitution and replaceable rules (Edwards et al., 2012).

Section 588M of the Corporation Act 2001 discusses the recovery of compensation for loss resulting from insolvent trading. The said section is a consequence or an effect of the section 588G of the Corporation Act 2001 which talks about the director’s duty to prevent insolvent trading by company. Thus, if a director of a company operative in Australia has breached his duty under section 588G of the Corporation Act which is to prevent insolvent trading, he is liable to pay the creditors of the company who have suffered losses as a debt and the creditor is allowed to recover the same from the directors of the company. Thus, the said section was created to keep the directors on check and make them liable for all the losses which are incurred to creditors as a result of breach of director’s duties. Thus, apart from the director duties mentioned in section 180 -184 of the Corporation Act 2001, the section 588G gives an additional duty to the director of a company in Australia and provides for a punishment or the liability which the director has to bear unless he breaches the said duty (Latimer, 2010).

Reference List

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