ACC2006 Company Law

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ACC2006 Company Law

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ACC2006 Company Law

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Course Code: ACC2006
University: Australian Institute Of Higher Education

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Country: Australia


The Journal must be neatly presented, stapled and secured. Only the weekly diary of reflective learning (students’ original ideas and critics) must be submitted to Turnitin by the Friday 7 September by 5pm. Hand in the PDF copy of the Turnitin originality report in class in week 9. This is the document that shows all the similarities highlighted, printed from Turnitin.
What to submit:

Cover Page
Relevant newspaper articles
Diary of reflective learning
Turnitin Originality Report

Alternative Business Structures – Sole Traders, Companies,
Partnerships, Trusts and Associations.
Companies and Incorporation
Company Constitution
Promoters, Outsiders’ Dealing with companies and CorporateLiability
Membership, members’ powers and dividends
Corporate Governance and Company Management
Introduction to Directors’ and Officers’ Duties
Financing a company via equity/debt, share capital transactions.
Members’ Remedies


Alternative Business Structures – Sole Traders, Companies, Partnerships, Trusts and Associations
Today was my first lecture on Company Law and I was excited to learn about the various business structures applicable in Australia. As I aspire to become an entrepreneur in the near future, so the idea of learning about the formation of various business structures excites me.
There are various types of business structures prevalent in Australia. They are sole traders, partnerships, companies, associations and trusts. Sole Traders are the personnel who start their own business without registering it as a company. My professor told me that many of the owners of small business, self-employed people and contractors begin their business as sole traders. As per my opinion, it is the cheapest medium to start one’s own business with minimum capital. Its startup costs are low and the sole trader can control the business and retain all the profits (Legal Vision, 2018).
Another form of business in a partnership. It is formulated when two or more people form a business. It is mentioned in the partnership agreement regarding the ratio of profit sharing, work and debts. It is the most popular structure with professionals i.e. architects, accountants and lawyers.  A company is a separate legal entity from its members and representatives. Executing the business affairs as a company can be more complex as compared to other business structures (Roehrich, Lewis and George, 2014).
The trust is relationship amongst the trustee who can be an individual or a company and the beneficiaries for whose benefit the business is carried. The trustee may execute the business for the benefit of the family and may distribute the entire profit to them (Queensland Government, 2017).
Another form of business structure can be an incorporated association which is the registered legal entity formed for the purposes of cultural, recreational and charitable purposes.
As per the article published in Forbes, it has been stated that partnership is the best form of business and certain points should be kept in mind for running a successful partnership. These can be drafting partnership agreements and stating the expectations clearly(Hull,2013).
Companies and Incorporation
One of the most popular and complicated business in Australian business is company. It is a legal entity which is separate from others and comprises of the options of limited liability. In this context, the Australian Securities and Investment Commission (ASIC) controls and supervises the incorporation process of the companies in Australia according to the provisions of Corporation Act 2001 (Cth) (the Act).
In order to set up the incorporation of a company, the type of company is to be determined and its appropriate structure for internal governance should be decided. The name of the company must indicate the legal status and if it is a proprietary company, the word Pty must be attached to its name. If its liability is limited, the word Ltd should be attached at the end of its name( Christensen et al.,2015).
The proprietary company should comprise of not more than 50 non-employee shareholders. It is limited by shares and its shares are subscribed at its incorporation. Its members are liable only to the unpaid amount of the shares. The size of the proprietary company is considered to be large if annual revenue is $10 million or more. The assets should be $5 million or more and there should be more than 50 employees (State Library Victoria, 2018).
As per the article published in Forbes, it was held that the newly incorporated Limited Liability Companies in New York are required to publish an announcement in two local newspapers for six weeks to inform the people about new companies setting up a shop (Odegard, 2017).
Company Constitution
The internal management of a company can be administered by the provisions of Corporations Act 2001 which can be applied to the company as replaceable rules or constitution or a combination of both. A constitution is a contract between each of the member of the company and the company itself. It can be between the company and its director or its company secretary and amongst its members.
The constitution can be adopted by the company before or after its registration. If it is adopted before registration, each of the members must agree to the terms of the constitution in writing. If it is adopted post registration, then the company must pass a special resolution (Cummings, 2012).
The company can change or cancel the constitution by passing a special resolution. A notice to pass a special resolution needs 28 days in case of publicly listed companies and a notice of 21 days is required in other companies. In order to pass the resolution, 75% votes must favor the topic. It is mandatory for the no liability public companies and special purpose companies to be administered by the constitution.
As stated in the news article posted in Business News Daily, it was mentioned that Articles of Incorporation is an asset of documents should be filed with the government body to authenticate the creation of a company (Post, 2016).
Promoters, Outsiders’ dealing with companies and Corporate Liability
Promoters are the individuals who help to incorporate a company by financing it and persuading others to finance it. The job of the promoter is to get the company incorporated and to search for its shareholders and directors. He purchases new assets for the utilization of the company and negotiates the contracts on behalf of the company.
The relationship of the promoter with the company is of a fiduciary nature. He is the first person who manages the affairs of the company and takes the necessary steps to incorporate it. He brings the idea of a company into reality. His task is to negotiate for the purchase of a business in case he aspires to acquire the existing business (Jones  and Welsh, 2012)  .
He is entrusted with the responsibility to name the company, decide the location of its registered office and the amount to be invested and the form of share capital. He shall also decide the underwriters and brokers of the capital issue and appoint the bankers and auditors for the company.
He gets the memorandum and article of association printed and he enters into the preliminary contracts with the vendors and underwriters. He also makes arrangement for preparing the prospectus, its advertisement, filing an issue of capital.
As per the article published in Business Standard, the promoters of 12 corporates in India have been referred to the insolvency court. Subsequently, they would not be able to bid for the companies as their loan accounts have been declared as non-performing assets for a year (Chatterjee, Dutt and Lele, 2017).
Membership, members’ powers and dividends
As per ASIC (2014) as per the Corporations Act 2001, a company must have a single member. The proprietary companies must not have more than 50 members who are not the employees of the company. Since the members of the company are its owners and they have a distinct legal existence and the assets of the company belong to it.
The members are not accountable for repaying the debts of the company in their capacity. They are only obliged to pay the unpaid amount of the shares. If it is not a company limited by shares, then the members should contribute to its winding up costs.
A member has the right to inspect the copy of the share register free of cost. The company is bound to send a copy of the constitution within 7 days of making a written application. Apart from this, the members who have 5% of votes in small proprietary companies or small company direct the company for the preparation of the financial and directors report. The reports must be sent to all the members. The members must sign the direction and it must not be made later than 12 months after the end of the financial year (Buckley  and Jackson, 2014)   .
As per the article published in Chicago Tribune, it was mentioned that US-based oil and gas company Sand Ridge Energy Inc. has adopted the shareholder’s right plan to avoid the takeover attempts.  
Corporate Governance and Company Management
In Australia, the corporate governance framework ranges beyond the compliance of regulatory requirements and comprises of voluntary and prescriptive elements. The three important components comprise of hard law, soft law and non –binding guidelines.
The hard law comprises of case laws which are legally binding and legislative requirements like the compliance of Corporations Act 2001(Cth) (Corporations Act). The soft law governs the listed rules of Australian Securities Exchange Limited (ASX) which has an impact of a contract as per law. The non-binding guidelines comprise of the third edition of ASX Corporate Governance Council Principles and Recommendations (ASX Principles).
The important characteristics of Corporate Governance in Australia are personal liability of the directors and extensive regulations. It has initiated a move towards the principle-based systems of administration and it has a great base of institutional investors and an effective investment infrastructure. There are laws which impose the personal liability of the directors and the requirements of the reporting of the remuneration as per the Corporations Act (Erkens, Hung and Matos, 2012).
The ASX principles were also introduced  to offer flexibility to the listed companies for adopting practices of corporate governance if they are considered to be the most suitable in those situations. The board is subjected to a legal binding requirement in order to elucidate the reasons for adopting the alternative practices.
As per the article published in Independent, the Financial Reporting Council has formulated the new corporate governance code. The boards of the companies have to explain how they consider the interests of the stakeholders while performing their duties as per Section 172 of 2006 Companies Act(Moore,2018).
Introduction to Directors’ and Officers’ Duties
The duties imposed by the Corporations Act on the officers and directors comprise of the duties to use their powers and duties with due diligence and prudence that a reasonable person would have conducted. It takes the reasonable steps to make sure that the directors are instructed about the fiscal position of the company and to ensure that it does not trade if is insolvent.
The duty of the directors and officers is to exercise their duties and power  in good faith and in the best interest of the company. They should no improperly use their position to obtain an undue advantage which may pose a threat to the interests of the company ( Tricker and Tricker, 2015).
They are also entrusted with the accountability to stop a company from trading if it is in an insolvent position. This is only possible if they comprehend the financial position of the company. They must also keep the records of the company in a proper manner and would be able to explain its transactions and financial positions and performance. They also owe the fiduciary duties to the company. They must act in the best interest of the company. They must not obtain the property of the company for their own benefit without the permission of the company( DLA Piper, 2017).
As per the article published in ABC News, it was stated that Mr. Purcell, the former director of Metgasco, the listed gas and oil venture of ASX had been expelled due to his breach of duties (Long, 2018).
Financing a company via equity/debt, share capital transactions
The modes of finance to be acquired by a company can be in the form of a bank loan, adopting the method of factoring, using credit cards, personal savings, attracting angel investors and applying for microloans.  
All these financings are mainly categorized as debt and equity financing. The debt financing should not lend the control of ownership to the lender but the principle amount must be paid with the interest. The duration of the loan, the interest rate, security and other  terms would depend upon for the purpose the loan is being used.
The duration of the short-term loans is from 30 -180 days which is usually made to cover the seasonal needs for inventory. The time loans and lines of credit are of similar types. Time loans are offered for a specific period of time when there is a recognized source of repayment available within the specific period of time (Bottomley, 2016).
The lines of credit are pre-approved vehicles which are renewed permitting the borrower to access the credit when it is required. Apart from this, the non-bank options such as lending which is based on assets can also be availed. The asset-based lenders provide the facilities for financing the businesses through secured lending against assets , factoring accounts receivables and loans against machinery and equipment. Another mode of financing are venture capital and investment banking, private equity placements and strategic partners (Bath, 2012)   .  
As per the article published in The Australian Business Review, it was held that the company should maintain its debt-equity ratio so that it can meet the expectations of its shareholders and there are no liquidity problems confronted by it.
Members’ Remedies
This lecture reminded me of the company law quiz which is to be held at the end of the entire session. Through the quiz, the professor wants us to review the whole subject so that we can prepare ourselves for the upcoming examination. Studying company law to date was an amazing experience for me as it was something unique and different and we had not studied topics of this kind before.
It was the last lecture on the subject and the topic was remedied available to the members of the company against oppression and mismanagement. The first remedy available to the members is the statutory remedy. It has three parts. The oppression remedy is stated in section 232 to 235 of the Corporation Act. It also contains the provisions for winding up of the company u/s 461 and an injunction can also be instituted to prevent the breaches of the Act.
Under the oppression remedy, the company can provide a remedy when it discovers that the conduct of the affairs of the company and its prosed acts or resolution which is proposed or passed proves to be contradictory to the interest of the members or are prejudicial, discriminatory and oppressive against the members (Wuth, 2014).
With this, the course of company law comes to an end. It was a delightful experience to study the various aspects through which the corporates are governed in Australia. I had learned about the incorporation of a company, its financing strategies, duties of directors and promoters, corporate governance, rights of the members and the constitution of the company and also the remedies available to the oppressed members (Farrar, 2015).
As per the article published in Reuters, it was stated that the topmost wealth manager AMP Ltd . was confronted by a revolt from its investors at its annual meeting against its executive pay plans as the board posed a threat to the interests of its stakeholders.
ASIC (2014) Shares [online] Available from: https://asic.gov.au/for-business/running-a-company/shares/ [Accessed 28 th August , 2018] .
Bath, V.(2012)  Foreign investment, the national interest and national security-foreign direct investment in Australia and China. Sydney L. Rev.34, p.5.
Bottomley, S.( 2016) The constitutional corporation: Rethinking corporate governance. NY:  Routledge. pp. 1-20.
Buckley, C. and Jackson, T.( 2014)  Dividend access shares: The ATO clarifies its position. Taxation in Australia. 49(2), p.74.
Chatterjee, D., Dutt , I.A. and Lele , A.(2017)  Promoters of stressed companies may challenge IBC tweak in court. Business Standard [online] Available from: https://www.business-standard.com/article/economy-policy/promoters-of-stressed-firms-may-challenge-ibc-tweak-in-court-117112400041_1.html [Accessed 29 th August , 2018]
Chicago Tribune (2012) SandRidge Energy adopts shareholder rights plan [online] Available from: https://articles.chicagotribune.com/2012-11-19/news/sns-rt-sandridge-rights-urgentl1e8mjg7h-20121119_1_sandridge-energy-shareholder-rights-plan-takeover-attempts [Accessed 29 th August , 2018]
Christensen, J., Kent, P., Routledge, J. and Stewart, J.(2015)  Do corporate governance recommendations improve the performance and accountability of small listed companies?. Accounting & Finance, 55(1).  pp.133-164.
Cummings, B.( 2012) Benefit corporations: How to enforce a mandate to promote the public interest. Colum. L. Rev. 112, p.578.
DLA Piper (2017) Directors Duties In Australia:  A Guide For Resident And Non-Resident Directors . DLA Piper.
Duran, P. and Kaye ,B.(2018) Australia’s AMP feels shareholder wrath over misconduct . Reuters [online] Available from: https://www.reuters.com/article/us-australia-banks-inquiry-amp/australias-amp-feels-shareholder-wrath-over-misconduct-idUSKBN1IA3L8 [Accessed 29 th August , 2018]
Erkens, D.H., Hung, M. and Matos, P.( 2012) Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide. Journal of Corporate Finance. 18(2), pp.389-411.
Farrar, J.H.(2015) The Move from Private Enforcement to Public Enforcement and Now the Move to Litigation Funding of Shareholder Activism: Are We Entering a New Era of Access to Justice in Corporate Law?. European Business Law Review.  26(1), pp.75-93.
Hull, P.(2013) 5 Lessons for Strong Business Partnerships. Forbes  [online] Available from: https://www.forbes.com/sites/patrickhull/2013/05/31/5-lessons-for-strong-business-partnerships/#13291642339d [Accessed 29 th August , 2018] .
Jones, R.M. and Welsh, M.( 2012)  Toward a Public Enforcement Model for Directors’ Duty of Oversight. Vand. J. Transnat’l L.. 45, p.343.
Legal Vision (2018) How Do I Incorporate a Company in Australia? Legal Vision PTY LTD.4
Long, S.(2018) Metgasco’s latest crisis: Director ousted for alleged breach of duties. ABC News [online] Available from: https://www.abc.net.au/news/2018-04-19/metgasco-latest-crisis-director-ousted-alleged-breach-duties/9675648 [Accessed 29 th August , 2018]
Moore, J.(2018)  Corporate crackdown? Businesses told to consider workers interests in new code that they can ignore if they want to. Independent [online] Available from: https://www.independent.co.uk/news/business/comment/workers-rights-corporate-governance-code-financial-reporting-council-crackdown-bosses-pay-business-a8449346.html [Accessed 29 th August , 2018]
Odegard, J. (2017) What’s the Deal with New York’s LLC Publication Requirement? Forbes [online] Available from: https://www.forbes.com/sites/jennyodegard/2017/09/06/whats-the-deal-with-new-yorks-llc-publication-requirement/#631762cb57a2 [Accessed 29 th August , 2018] .
 Oxford University Press. pp. 1-20.
Post, J. (2016) Articles of Incorporation: What New Business Owners Should Know. Business News Daily [online] Available from: https://www.businessnewsdaily.com/4038-articles-of-incorporation.html [Accessed 29 th August , 2018] .
Queensland Government (2017) Trust business structure [online] Available from: https://www.business.qld.gov.au/starting-business/types-legal-structures/legal-structures/trust [Accessed 28 th August , 2018] .
Roehrich, J.K., Lewis, M.A. and George, G.(2014)  Are public–private partnerships a healthy option? A systematic literature review. Social Science & Medicine.  113, pp.110-119.
State Library Victoria (2018) Companies in Australia [online] Available from: https://guides.slv.vic.gov.au/companies/structures [Accessed 28 th August , 2018] .
Tricker, R.B. and Tricker, R.I.(2015)  Corporate governance: Principles, policies, and practices. USA:
Wuth, N.(2014) More Say on Pay-Shareholder Rights and Remedies in Respect of Excessive Director Remuneration. Canberra L. Rev.  12, p.30.
Zwi , P.(2009) Debt-to-equity ratio. The Australian Business  Review [online] Available from: https://www.theaustralian.com.au/business/wealth/debt-to-equity-ratio/news-story/35898109d4666ca15556098b9326b177 [Accessed 29 th August , 2018]

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