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LAW202 Corporations Law

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LAW202 Corporations Law

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LAW202 Corporations Law

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Course Code: LAW202
University: Elite Education Institute

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Country: Australia

Question:
Discuss about the Formation And Incorporation Of Corporations.
 
 
Answer:

Issues
The key issues of this case are regarding the formation and incorporation of corporations, such as selection of register officer, filing the application and selecting the name of the firm. Further, the issues involve benefits of the company over sole proprietorship such as tax exemptions, expansion of business and ease in rising of funding.
Type of Corporations
Section 112 of the Corporations Act 2001 provides the provisions regarding different kinds of companies. The firms are divided into two parts, Proprietary, and Public Enterprises. The proprietary corporations fall into two parts, limited by shares and Unlimited with share capital. Public companies are divided into four parts which include, limited by shares, limited by guarantee, Unlimited with share capital and No liability company (Kobras 2010).
Corporation’s Name
The section 148 of the Corporations Act 2001 provides provisions regarding name of an organization. The company is requiring using an available name or Australian Company Number. In case of a public company, the word ‘Limited’ must be added at the end and in the proprietary firm the word ‘Proprietary Limited’ must be included in the corporation’s title. The unlimited proprietary companies are required to add ‘Proprietary’ at the end, and no liability enterprises are required to add ‘No Liability’ at the end of their title.
Section 147 provides that the name of a corporation must not be identical to another organisation and it must not be unacceptable by a government authority or ASIC. The unacceptable names include the titles rejected by ASIC, the names which include ‘commonwealth’ or ‘federal’ and which are denied by government authority. The availability of name can be checked over National Names Index which can be searched through online website of ASIC (ASIC n.d.). A person can reserve a name under section 152 by applying prescribed form to ASIC. ASIC is obligated to reserve the name if it is available and such reservation last for two months after that person can write an application for extension of a name for two more months (Kobras 2011).
 
Registered Office
The section 119A provides provisions regarding the jurisdiction for incorporations of an enterprise. A company is incorporated in particular jurisdiction which includes a state or Territory. The firms are required to submit applications under section 117(2) (n) and 601BC (2) (o) for its registration. ASIC is obligated for providing the name of state or territory of corporations in the registration certificate. The legal capabilities of an enterprise did not get affected by the regulations of state or territory. The proposed address provided by the corporation in it registration application becomes the permanent address for its registered office. Generally, the registered office of an enterprise situated near the place of work of a company and is considered as the permanent address of the enterprise. Section 144 provides that it is mandatory for corporations to display its name at every place where it carries out its business (McBurnie and Ziguras 2001).
Consents and Share Details
While registering a corporation, it is necessary that the structure of the company is defined which include the number of shares and directors’ authorities. The consent of directors, shareholders and members of the enterprise are required for the registration. In case of a proprietary firm, the approval of the entire member is necessary for the registration procedure. The directors and members shareholding details are also needed to be provided at the time of registration. All such information must be correct and submitted at the date of registration (Coffee, Sale and Henderson 2015).
Constitution or Replaceable Rules
Section 136 provides that a corporation can adopt a constitution before or after its incorporation, the constitution is the contract between the company and its directors, secretary, and other members. Constitution governs the operations of directors and member of a corporation (Lawpath 2015). The replaceable rules provided under Corporations Act which also governs the internal management of an enterprise. Section 141 of the act contains provisions regarding replaceable rules which include provision relating to maintenance of books and appointment, selection, and power of directors. The adoption of the constitution is mandatory for ‘No liability’ and special purpose proprietary corporations. In this case, the constitution is a better option than replaceable rules because constitution covers a wide variety of circumstances and it is a safer option for the enterprise (LegalVision 2016).
 
Lodging Application and Paying Fee
Section 117 provides provisions for lodging a registration application with ASIC. The application must include following items (Chen, Dyball and Wright 2009):

Type, name, address, hour of business, proposed register office, place of business of the company
Name, consent, address, family details, number of shareholding of the members
Amount paid by each member and copy of constitution
Application must be in prescribed format

ASIC charge fees for the document and application lodge by any party. For reservation of company’s name a fee of AU$48 is payable and applying for registration has a fee of AU$479 for share capital and without share capital, it is AU$395 (Green 2010).
Effect of Incorporation
As per section 119, a corporation comes into existence as a body corporate on the day of its incorporation. The company acquires various rights and liabilities, and it remains in existence until it’s deregistration.
Applicability
In this case, a proprietary corporation is a better choice for Richard’s business because it provides various benefits such as tax exemptions, expansion, and control over operations. As per National Names Index, both names (Ridali and Rich’s Guaranteed Olives) are available for registration. The registered office of the company should be in the Hunter Valley because it is the place of business for the enterprise. Richard should get the consent of his sons and another member who will be the part of such corporation. The company should adopt constitution instead of replaceable rules because it is safe and cover wider circumstances. The method of lodging application and effects of incorporations are mentioned above. From the above observations, incorporating a company is a better option for Richard and his sons, and the procedure of registering a corporation is referred above.
Issues
The key issues of this case include tortious liability of negligence by Cosmo Mine Ltd; they failed their duty of care to provide a safe environment to their workers. Another problem is whether the corporate veil can be lifted and the directors can be held responsible for the acts of Cosmo Mining Services Pty Ltd.
 
Lifting of Corporate Veil
Every corporation has separate legal entity from its directors and members meaning a member cannot be held personally liable for the actions of an enterprise. Any party aggrieved by the actions of corporations cannot sue the member or directors of such company (Ramsay and Noakes 2001). The corporate veil works as a shield for the members and directors, but in certain circumstances, the court had the authority to lift the corporate veil and held the person liable for their actions. The corporate veil can be lifted on the order or court or by the decision of shareholders of a company (Anderson 2009). Following are three circumstances from different cases in which court lifts the corporate veil.

There have been several cases in which the court held corporations liable for controlling and decision-making for the operations of subsidiary companies. In the case of CSR Ltd. v Young (1998) Aust Tort Reports 81-468, the court that subsidiary corporations have established its parent enterprise agent for performing the transactions on behalf of its management (Anderson et al. 2012). Due to this relationship, the orders of Parent Corporation’s behest upon the subsidiary company. The plaintiff filed a case against both subsidiary and parent company because due to the work of corporations he suffered from mesothelioma. The court provided that both the enterprises have a duty of care to their employees and residents of the town because the parent company controls the actions of the subsidiary (Luntz n.d.).
In Smith, Stone & Knight Ltd v Birmingham Corp (1939) 4 ALL ER 116 case, the court did not consider the separate legal identity of two corporations and decided that one should be held liable for another organization’s actions. In this case, the court found out that the holding company did not transfer the ownership of the waste paper business to its subsidiary which makes them the real owner of the firm and the subsidiary was just the agent of the holding corporation (Nyombi 2014). The court decided that the profits, employees, ventures, and control of subsidiary corporations shall be considered a holding company’s business.
The court can lift the corporate veil if the company is formed just as sham or façade to confuse or deceit the public. A good example was provided in Gilford Motor Co. v Horne (1993) Ch 935, in which an employee enters into a contract with his employer that he will not engage in similar business activities. After his resignations, the employee establishes corporations of similar work in which he and his family member were directors and shareholders. The court provided that formation of this organization is just a scam or façade and held the employee liable for his actions (Alcock 2013).

In the case of Terry, the provision from above cases applies in this instance as well. The corporation failed to comply with their duty to care which caused injury to the employee. CM Company acts as an agent but completely control the operations of CMS because the majority of their shareholders were similar. Therefore, CM can be held liable for the actions of CMS. The Lazarus Pty Ltd was formed as scam and façade to remove the liability of CMS Corporation. The facts mentioned above provided that the shareholders and management of CM has an obligation towards their employees and citizens lived near the workplace; therefore, terry can file a suit against CM corporations to recover his losses.
 
Scam and Façade Company
In Creasey v Breachwood Motors Ltd (1993) BCLC 480 case, the general manager was wrongfully dismissed from Breachwood Welwyn Ltd, but before his suit, the corporation wound up (Franklin 2012). The assets of Breachwood Welwyn were transferred to Breachwood Motors, and they settle all its debts except for general manager’s claim. The court provided that Breachwood Motors is liable for the actions of Breachwood Welwyn because the directors ignored the provision of the separate legal entity and the new company is formed as scam or façade. In the case of Lazarus Pty Ltd, a similar principle applies as well. The new business is formed by the directors to avoid the liabilities of CMS; therefore, they shall be liable for the actions of CSM Company.
Liability of Wound up Corporation
CMS Company has been wound up by the unanimous vote of shareholders, in order to avoid its responsibility towards employees and public. Terry has right to file a suit against the shareholders for the damages suffered by him, due to the actions of CSM. The court can lift the corporate veil and held the shareholder liable towards the claims of Terry (Pradhan 2013).
Conclusion
From the above observations, it can be concluded that CM was acting as an agent for the CMS Corporation, but they hold the operating power of the company which provides them full control over the enterprise. The operations of CMS contaminated the nearby river which caused cancer to a citizen of Gunbarrel and Terry, who was the former employee of the company. The shareholders wound up the corporation to avoid the liabilities and transfer the asset to Lazarus Pty Ltd. Terry has right to file a suit against CM corporation the management of the company violated the principles of the separate legal entity and used another company to avoid their liabilities. The court can lift the corporate veil and held the director and shareholders of CM corporations liable towards employees and citizens.
 
References
Alcock, A., 2013. Piercing the Veil-A Dodo of a Doctrine. Denning LJ, 25, p.241.
Anderson, H., 2009. Piercing the veil on corporate groups in Australia: the case for reform. Melb. UL Rev., 33, p.333.
Anderson, H.L., Welsh, M.A., Ramsay, I. and Gahan, P.G., 2012. Shareholder and Creditor Protection in Australia-A Leximetric Analysis.
ASIC., n.d. Search ASIC Registers. ASIC. Retrieved from < https://connectonline.asic.gov.au/RegistrySearch/faces/landing/SearchRegisters.jspx?_adf.ctrl-state=kfvwpc8ld_4 >
Chen, R., Dyball, M.C. and Wright, S., 2009. The link between board composition and corporate diversification in Australian corporations. Corporate Governance: An International Review, 17(2), pp.208-223.
Coffee Jr, J.C., Sale, H. and Henderson, M.T., 2015. Securities regulation: Cases and materials.
Franklin, L., 2012. Company Law. Significance of corporate personality and the meaning of’lifting the veil of incorporation’.
Green, R., 2010. Overview of some things to consider when registering an Australian company. Clear Docs. Retrieved from < https://www.cleardocs.com/clearlaw/company-registration/company-registration-considerations.html >
Kobras, S., 2010. Business Structures in Australia. [PDF file]. Schweizer Kobras. Retrieved from < https://www.schweizer.com.au/articles/Business_Structures_in_Australia_(SK00125445).pdf >
Kobras, S., 2011. Corporate Law. [PDF file]. Schweizer Kobras. Retrieved from < https://www.schweizer.com.au/articles/Corporate_Law_(SK00079638).pdf >
Lawpath., 2015. Company Constitution vs Corporations Act Replaceable Rules. Lawpath. Retrieved from < https://lawpath.com.au/blog/company-constitution-vs-corporations-act-replaceable-rules >
LegalVision., 2016. What’s the Difference Between a Company Constitution and the Replaceable Rules?. LegalVision. Retrieved from < https://legalvision.com.au/difference-between-a-company-constitution-and-the-replaceable-rules/ >
Luntz, H., CHAPTER FIFTEEN THE LAW OF TORTS.
McBurnie, G. and Ziguras, C., 2001. The regulation of transnational higher education in Southeast Asia: Case studies of Hong Kong, Malaysia and Australia. Higher Education, 42(1), pp.85-105.
Nyombi, C., 2014. Lifting the veil of incorporation under common law and statute. International Journal of Law and Management, 56(1), pp.66-81.
Pradhan, K., 2013. Liability of Past Members during Winding Up of a Company.
Ramsay, I. and Noakes, D.B., 2001. Piercing the corporate veil in Australia.

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