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Workbook (Workshop 1)
Company Law (2106AFE)
Griffith University
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2106AFE Company Law Workbook Workshop 1 No. Workshop Objective Key Law Further Reading 1 Answer the question, is a 2 Describe the history of company law in Australia and the impact of the Constitution on history 3 Explain the main powers and functions of ASIC 4 Explain the process for company registration and CA: 117, 119, 124, 142, 145, 147 the effect of registration 5 Describe the four classifications and two types of 45A, 112, 113, 162, 254M, 254P, 254Q, companies 254R ASIC Act: 13, 14, 19, 30, 33, 49, 50, Know it? Answers to revision questions: 2(a) Note: Cases denoted are provided in the textbook. Otherwise they are summarized in this workbook. Note: Key Sections are hyperlinked and can also be downloaded from: CA: ASIC Act: 1 Contents Introduction ................................................................................................................ 4 The Life and Times of a Company .......................................................................... 4 What is the workshop model? ................................................................................. 5 What happens during the workshop? ..................................................................... 6 You are not recording the workshop. May I ask why? ............................................ 6 What do I need to do before the workshop each week? ......................................... 7 What do I need to bring to the workshop each week? ............................................ 7 Why have a workbook? .......................................................................................... 7 Assessment................................................................................................................ 7 Workshop Exercises .................................................................................... 7 Hypothetical Assignment .............................................................................. 8 Final exam 8 How is the ILAC method used in this course? ............................................................ 9 Video: Companies regulatory framework ................................................................. 9 What is a Company? ............................................................................................ 10 What is the history of Company Law in Australia? ................................................ 10 The Australian Securities and Investments Commission (ASIC) .............................. 12 What are the main powers and functions? ................................................ 13 ASIC the Investigator ......................................................................................... 13 ASIC The Enforcer............................................................................................. 14 Registering a Company ............................................................................................ 14 Video: Company Classification ................................................................................. 17 Company limited shares .................................................................................. 18 Company limited guarantee ............................................................................. 18 2 Introduction The Life and Times of a Company COMPANY Registration process Contracts Promoters COMPANY END Voluntary Administration Receivership Liquidation DOCA Schemes of Arrangement Separate Legal Entity Participants Mechanics Type Replaceable Rules Constitution Company Secretary Share capital transactions Employees Dividends ASIC Creditors Meetings Shareholders Directors (and their Duties) Board (Directors) General (Shareholders) Remedies if something goes wrong with the above 4 What is the workshop model? The aim is to simplify the law for you to improve your understanding. You are expected to complete a minimum 10 hours of study per course per week (including the workshop). Company Law is a very difficult course for many students because it requires you to understand very technical legal language and to possess good written communication and problem solving skills. Given its difficulty, students may need to spend more than 10 hours per week. The delivery of the course has changed in a way which maximises your study time and, based on previous feedback, better assists you in your learning. The approach taken in Company Law is a one. What this means is that much of the legal content that would normally be delivered in the face to face lecture is available to you in this workbook and in video recordings. Instead of a 2 hour lecture, 1 hour the delivery mode changes to workshops. In summary, what this means for you (compared to a traditional course) is: 1. You spend more time preparing for the workshop. Preparation includes: a. Taking notes and reviewing the textbook readings, workbook, video recordings and Key b. Noting any questions you want answered during the and c. Completing the one workbook exercise assigned each week. 2. You spend more time in the workshop actively participating in practical, exercises that apply your legal knowledge, as opposed to passively listening to us (or attempting to do so!). This ensures that you engage in active or deep learning, which is more effective than passive or surface learning. Remind me of the bike analogy in the workshop so I can explain the difference between the two types of learning. 3. Instead of completing weekly seminar work outside of class time, you will complete a number of practical interactive exercises individually, or in groups, during the workshop. 4. You spend less time preparing for tutorials and seminars. You only have to prepare an answer to 1 question each week. The question is clearly indicated in the workbook. 5. More opportunities for students to practise a number of generic and professional skills such as oral presentation, problem solving, written 5 What do I need to do before the workshop each week? 1. Review the textbook readings, workbook and video recordings, taking notes as you go for the purpose of understanding the workshop objectives: 2. Note any questions you want and 3. Complete the one workplace exercise assigned each week. What do I need to bring to the workshop each week? 1. An electronic or physical copy of the workbook that you can access during the 2. An electronic device that can access the Internet, preferably a laptop or personal and 3. Your answer to the one workplace exercise assigned for you to complete each week. Why have a workbook? The idea behind the workbook is to combine all of your materials into one electronic, interactive workbook. Available in PDF or Word format, you can: review the video recordings and Further Readings from the textbook and take notes, type in questions that we can answer during the workshop, type in your answers to the workshop exercises covered before and during the workshop, type notes during the workshop into the workbook, change the format of the workbook to suit your own learning put the explanation of the law in the workbook in your own words. Key sections of the Corporations Act and ASIC Act have also been hyperlinked for your convenience within the workbook. How you use the workbook is up to you. The workbook can then be used as a starting point for your assignment preparation and final exam revision. Assessment Workshop Exercises Students will form groups of during the workshops. You will be doing the exercises: to be completed in (see index to the workbook). There will be one group response to the workshop exercises that I will assess at the end of the workshop. How you put together that one response is up to you. For example, you could nominate a person to type out the answer on their 7 device and then share the answer after class with all group members. Alternatively you could use a real time application like Google Docs and all work on the answer. I will show you how Google Docs can be an effective group tool. Students will receive a mark of or each week. The relevant weeks for the workbook submission are Weeks 2 to 5 and 7 to 11 (9 workshops). best 6 workshop submissions will be counted towards the final mark. The assessment is designed to improve group work, interpersonal and communication skills. What is the assessment criteria? All members of the group will receive for the workbook submission provided that they satisfy all of the following criteria: (a) Group members follow the instructions of the workbook and (b) Group members make a reasonable attempt on all of the workbook exercises What if I view or copy answers from previous trimesters? If this activity is detected at any time during the workshop, your entire group will receive zero for that group work. Do I have to be in the same group each week? No. Hypothetical Assignment Students are required to solve a hypothetical problem based on Workshop Weeks 1 to 5 using the ILAC (Issue, Law Application, Conclusion) method. The problem will be available in Week 2. Final exam A final exam of 2 hours plus 10 minutes perusal which includes a mix of hypothetical questions. The final exam covers the following topics: Directors Duties, Remedies and Corporate Insolvency. 8 What is a Company? A company is an artificial entity which the law recognises as a separate legal person. What laws recognise the Company? 1. Legislation: Corporations Act 2001 (Cth) and associated statutes such as the Corporations Regulations 2001 (Cth) and Australian Securities and Investments Commission Act 2. Case law: In general, the case law assists in clarifying the meaning of particular words in the CA. The role of cases in Company Law is minor compared to other areas of the law. For example, the legal principles from cases form the basis of Contract 3. The company constitution (if any): This is not the Australian Constitution (which you covered in Introduction to Business Law), but rather the Constitution sets out the rules for the internal management of the Company. What do I mean legal The Company is a which is separate from the following stakeholders: 1. Shareholders (i. company owners) 2. Directors 3. Other officers (e. company secretary) 4. Employees This is known as the legal concept. I will address the effect of the separate legal entity concept in more detail later in this workbook. What is the history of Company Law in Australia? The Impact The Australian Constitution has greatly influenced the history of Company Law in Australia. As discussed in Introduction to Business Law, the Australian Constitution gives the Commonwealth and State Governments powers to make laws in certain areas (known as of Unfortunately, the Constitution does not clearly say that the Commonwealth can make laws with respect to all company matters. 10 The closest power is s 51(xx) of the Constitution. This section gives the Commonwealth power to make laws with respect to: Foreign corporations and trading and financial corporations formed within the limits of the Commonwealth. In 1909, the High Court in Huddart Parker Co Pty Ltd v Moorehead adopted a narrow interpretation of the Constitution. The High Court interpreted the word to mean in Thus, the Commonwealth could not make laws about the process of forming a company. In the first half of the 20th century, Australia company law (which was adopted from England) was administered each State and Territory. The Commonwealth government has, since the entered a number of arrangements with the States in an effort to achieve uniform regulation of companies across Australia. Unfortunately, most of these arrangements were unsuccessful. Reflection: Why do you think the Commonwealth Government wanted to have a uniform system of Company Law? What would be the benefits? Uniform Companies Acts Each Australian State passed identical legislation (known collectively as the Companies Whilst the legislation may have been identical when it was initially passed each State government, State Governments began making their own amendments to the legislation, thus causing inconsistencies across States. Scheme In 1981, the Commonwealth passed legislation that applied only in the Australian Capital Territory (which the Commonwealth could do under the Constitution) and each State passed legislation adopting the Commonwealth legislation as its own law. The legislation established the National Companies and Securities Commission (the NCSC) to work alongside the agencies (known as the Affairs The problem with the Scheme was that each Corporate Affairs Commission in each State adopted its own interpretation of the law, leading to inconsistencies. 11 What are the main powers and functions? Advisor: Advise the Minister (i. Commonwealth Treasurer) of any changes that should be made to the CA Administrator: Companies are registered through the ASIC filing a Form 201 (refer The CA also requires other documents to be filed with the ASIC (e. special resolution to alter the Constitution, change of company name) Information provider: ASIC maintains public information on all Australian companies (including persons excluded from managing companies) through its databases, which are available at (go to the right hand side of the page entitled ASIC Financial regulator: ASIC regulates financial products, financial services and financial markets (covered in financial planning courses) Takeover regulator: ASIC regulates company takeovers (not covered in this course) Investigator and enforcer: This is the area particularly relevant to Company Law (see below) ASIC the Investigator The ASIC may undertake an investigation if it has reason to suspect that there may have been a breach of the CA (s 13). Suspects include, but are not limited to directors, company officers, auditors and liquidators. The ASIC must undertake an investigation if directed to do so the Treasurer (s 14). In the course of its investigation: 1. The ASIC may: a. If it suspects or believes on reasonable grounds that a person can give information relevant to a matter that the ASIC is or proposing to b. notice, require a person to give the ASIC all reasonable assistance during the 13 c. notice, require a person to appear before an ASIC employee to be examined on oath or affirmation (s 19). 2. The ASIC may: a. Give to a company or an (e. current or former officer of company, solicitor, agent, employee, auditor) a written notice requiring the production of specified documents (s 30(1)) b. Give to any person a written notice requiring the production of specified documents in that possession which relate to the affairs of a company (s 33) ASIC The Enforcer ASIC can commence criminal and civil proceedings against companies and relevant persons. Section 49: Following an investigation or examination, the ASIC may commence a prosecution of the person for a criminal offence if it appears that the person: may have committed an offence in breach of the and should be prosecuted. Section 50: Following an investigation or examination, the ASIC may start a civil action against a person or company where it would be in the public interest to do so. For example, the ASIC can take action on behalf of a company against the directors for fraud, negligence, breach of fiduciary duty or breach of the CA. Registering a Company When must you form a company? Section 115(2) of the CA says that you cannot carry on a business (e. partnership or association) for gain where there are more than 20 members. There are exceptions which relate to professional partnerships (s115(2)). For example, accountants can have up to partners and lawyers 400 partners. How do you form a company? To form a company, it must be registered with ASIC. A copy of the Form 201 Application for Registration is available on the ASIC website. 14 Note: Many smaller companies use their accountants as the registered office. The accountants are hired to respond to ASIC correspondence and prepare ASIC documentation to comply with the CA. Step 4: Obtain various consents Step 4 requires you to obtain written consents from persons to become officeholders of the company (s 117(5)). officeholders I mean shareholders, directors and secretaries. If your company does not occupy the registered office (e. you use an accounting firm as registered office), you must also obtain the written consent (s 100). Step 5: Determine whether Company will be managed under the Replaceable Rules, Constitution or Both Step 5 deals with the rules of the internal management (i. how the company will be run). If a company does not have a constitution which sets out these rules, then the default rules in the CA, known as the Replaceable Rules, may apply. and will be covered in Workshops 2 and 3. Step 6: Complete share details Step 6 requires you to consider your share structure. What class or classes of shares will be distributed? Does your client want ordinary or preference shares? What about the rights and obligations of each class? Will the shares be fully or partly paid on registration? What will be the total number of shares? All this information must be included on the application form. Step 7: Lodge the Form with the ASIC and pay the application fee The Application fee for most proprietary companies is Many people pay service providers from to complete the required documents to set up a company. Many accounting firms also provide this service for their clients. ASIC will then process the Application and if approved, issue you with a certificate of registration. What is the effect of registration? The Company starts at the beginning of the day of registration (s119). ASIC will post a certificate to the registered office confirming the date of registration Certificate of 16 On registration, the law effectively recognises the Company as a separate (like a human being). Section 124 CA makes clear that a company has two types of power: 1. Individual powers, such as: a. sue and be sued in its own b. survivorship continued existence despite changes to its c. acquire, hold and dispose of d. enter into contracts and incur liabilities in its own name 2. Corporate powers (i. those powers that the CA and other laws give to companies), such as: a. issue and cancel b. grant options over unissued c. distribute the property among its and d. give security over its assets, such as the grant of a fixed or circulating security interest. Video: Company Classification Section 112 CA provides for two types of companies and four different classifications which are dependent on company type. Section 112(1) provides: The following types of companies can be registered under this Act: Proprietary companies Limited shares Unlimited with share capital Public companies Limited shares Limited guarantee Unlimited with share capital No liability company Watch the video, Classification of Companies, in your materials this week. This video outlines the two types of companies (proprietary and public), and the classifications that apply to each company type. The feature which distinguishes each classification is the liability of shareholders for the debts of the company. 17 How does the company disclose the guaranteed amount? Section 117(2)(m): The guaranteed amount must be set out in the application for registration. Is this company type popular? No, because it does not raise initial or working capital from its members. Some nonprofit organisations (e. clubs and charities) use this company type as its capital needs can be met from outside sources such as donations, subscriptions and social activities etc. Unlimited Liability Company What is it? Section 9 CA: A company whose members have no limit placed on their liability. What is the liability if the company goes broke? Members are liable in a winding up for the debts of the company without limit if the company has insufficient assets to meet its debts. Is this company type popular? No, because limited liability is seen as the most important reason for selecting a company over another business structure (e. partnership, sole trader). Some accountancy and law practices are conducted as unlimited companies, as their professional rules prohibit them from being conducted as Limited liability companies, yet they still wish to obtain the other benefits of incorporation. No Liability Companies What are the restrictions on forming a NL company? Section 112(2) and (3) CA: A NL company must: 1. 2. 3. 4. Have a share Have a State in the constitution that it sole objects are mining and Have no contractual right under its constitution to recover calls made on its shares from a shareholder who fails to pay a 5. Not engage in activities that are not mining purposes. 19 What is a mining purpose? Look up the definition of in s 9 of the CA. Are all mining companies NL companies? No a mining company does not have to be formed as a NL Co (e. Rio Tinto Limited or BHP Billiton Ltd). Why is it called a NL company? Section 254M(2) CA: The shareholder is not legally required to pay the calls made on their shares or to contribute to the debts and liabilities of the company. Unlike a company limited shares, a NL company has no right to sue the shareholder to pay any calls on shares. This rule will not apply if the NL Co and a shareholder enter a separate contract where the shareholder promises to pay the full issue price of the shares: Theseus Exploration NL v Foyster Why are there NL companies? NL companies facilitate the highly speculative nature of mining. As an incentive for exploration mining companies are given the benefit of NL status, as many ventures may fail to produce any viable financial returns. How do NL companies operate? A new NL company commences a program of exploration and will offer shares on the basis that only part of the issue price will be paid at the outset and that the balance will be called up at intervals according to the need to finance exploration. What is the procedure for making a call on shares? 1. The Company makes the call. The call must be made payable at least 14 days after the call is made (s 254P(1)). 2. At least 7 days before the call becomes payable, the Company must provide written notice to the shareholders about the call amount, the payment date and place of payment (s 254P(2)). 3. The shareholder then has 14 days from the date the call became payable to pay the call. The shares are immediately forfeited if the call is not paid within the 14 day period (s 254Q). 4. Any forfeited shares must then be offered for sale public auction within 6 weeks after the call becomes payable (s254Q(2)). 20
Workbook (Workshop 1)
Course: Company Law (2106AFE)
University: Griffith University
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