Alternative Business Structures
The business structure-The Sydney Morning Herald, 2018
This article describes various business structures working within the jurisdiction of Australia.
The various form of business structures in practice in Australia today are (Sealy, and Worthington 2013):
- Sole traders: This a business structure where the ownership of the business is held by one person. In such a business structure there is no distinction between the owner and business and thus the liabilities of the business are taken as liabilities of the owners.
- Partnership: This is a business structure where various individuals agree to undertake business transactions mutually with a view of earning profits. The liability in case of partnerships is also unlimited except in case of limited liability partnerships.
- Joint venture: This is a business structure where individual entities undertake business transactions together, however in this case the profits earned is individual and the liability in several.
- Trust: In this case a trustee is appointed who holds properties for the benefit of beneficiaries. Such a business structure has various tax advantages.
- Company: A company is an incorporated business structure where the business has its own separate legal identity. Thus the owners (shareholders) are different from the business and hence the liabilities of the company are not attributed as their liabilities.
- Not-for-profit organizations: These are organizations that are incorporated separate legal entities however the aim in this form of business structure is not to earn profits. These are registered entities under the State or Territory Associations Incorporations Acts or ASIC.
Sydney cosmetics company takes on US retail giant over Bondi Beach trademark– ABC News, 2018
This newspaper article discusses the legal battle between Abercrombie and Finch and an Australian cosmetic company relating to their trademarks. It incidentally touches upon the incorporation of both these companies.
A company is a separate legal entity incorporated as per the provisions of the Corporations Act, 2001. The term corporation however includes several other forms of entities as well. Companies are governed and regulated by the Australian Securities and Investment Commission (ASIC). The various forms of companies are defined under the following heads as per the Corporations Act, 2001 (Hanrahan, Ramsay and Stapledon 2013):
- Proprietary or Public company (thus based on ownership).
- Based on liability.
- Based on the size (in case of proprietary companies).
- Listing status.
The corporate veil refers to a concept that the company is liable for its own actions and its actions cannot be attributed to the administration or management. Thus it acts as a curtain that protects the administration from liability. Salomon v Salomon & Co Ltd is the leading case on this issue (Hannigan 2015).
It Might Be Time to Update Your Company Constitution CCASA, 2018
This article discusses various updates required by company constitutions to comply with the provisions of the Corporations Act, 2001.
Companies in Australia that are formed before July 1998 were created by virtue of their Memorandum of Association and Articles of Association. For companies that came into existence after July 1998 the Corporations Act, 2001 provides for the formulation of rules that are applicable for the companies functioning (McQueen 2016). These could be the replaceable rules prescribed by the Corporations Act, 2001 (as set out in Section 141) or a company constitution that prescribes these rules or a consolidated version of both. ASX listed companies mandatorily need to have a company constitution. The doctrine of ultra vires applies to companies that have a constitution which defines the objects of the company. The replaceable rules in the Act and/or the company constitution provide for three kinds of contracts that put in place:
- Between the company and each of its individual members.
- Between the company and each individual director and company secretary of the company.
- A contract between all the individual members functioning within the framework of the company.
Director liability laws onerous, confusing: lobby group- Financial Review, 2018
This newspaper article deals with various provisions of law relating to the liability of the company in proportion with the liabilities and obligations of the directors.
Promoters are the individuals who bring a company’s incorporation process into motion. Thus they have a wide range of powers which are restricted by virtue of the Corporations Act, 2001. Passive promoters are those who are not directly involved in the incorporation process but have an interest in the incorporation of the company. The promoters owe the company a fiduciary duty as decided by common law principles. Pre-registration contracts are contracts that are entered into by the promoter and would be a liability of the company after incorporation. These contracts are not binding on the company as per common law. If the company ratifies such a contract after incorporation it would be liable for the contract as provided in Section 131 (1). As provided in Section 131 (2) of the company is not incorporated or if it does not ratify the agreement the promoter would be liable for such contracts (Armour and Ringe 2013). The directors and other employees act as agents of the company and where they are authorized to act in a particular manner the liability for their actions must be borne by the company.
Companies and Incorporation
Payout Power: Singapore Loves Dividends, Australia Most Generous – Business News -The Star Online 2018
This article discusses payment of high dividends of companies based in Australia in the Asia-Pacific region.
The owners and/or custodians of a particular incorporated company are its members. In case of a company limited by shares the shareholders of the company are considered its members. The powers that these members have are (Ferran and Ho 2014):
- The can vote on resolutions when attending members meetings.
- They have the power to call for a meeting of members and propose resolutions.
- They have the right to receive dividends and other distributions by the company.
- A restricted right to receive material information about the company.
- They can initiate derivative and oppression actions against the company.
- They would also have any other rights prescribed by the constitution of the company.
A company must mandatorily maintain a register of members. Any errors in such a registered can be altered or rectified by an application to the court. This register is evidence of title to the shares of the company and liabilities arising from any errors in the register would have to be paid for by the company as mandated by common law. Shares of a company are transferable. A company is allowed to pay dividend if the company passes the balance sheet solvency test as prescribed in Section 254T of the Corporations Act, 2001.
ASX proposes tougher governance guidelines- ABC News, 2018
This article talks about the corporate governance principles formulated by the Australian Securities exchange. The third edition of these recommendations is currently in force.
Corporate governance refers to administrative principles of a company that ensure transparency and accountability. These help protect the interest of the company and shareholders. In Australia the ASX recommends corporate governance principles that need to be incorporated into the framework of a company. The primary recommendation of the ASX is a separation of powers, this helps ensure that the decisions taken by company are not an arbitrary use or misuse of power (Riaz et al. 2015). The agency theory mandates that the actions of the company (as undertaken by its agents) should be aligned with the best interest of the company and the administration.
ASIC eyes case against CBA board- Financial Review, 2018
This article discusses the ASIC’s ability to legally pursue directors of banking corporations for a breach of the fiduciary duties owed by them.
The directors of a company are required to discharge their duties with care and diligence as provided for in Section 180 and 181 of the Corporations Act, 2001. They must additionally avoid transactions that would be considered insolvent trading. These duties are imposed by common law and statutory law. Officers of a company have a fiduciary duty to act with due care and diligence and in the best interests of the company (Haldane 2015). They must also avoid conflicts of interest of all forms especially financial self-interests. The ASIC can initiate proceedings against a person who is in contravention of these duties and damages maybe awarded under common law for such a breach.
Membership and Dividends
Why start-ups shouldn’t raise capital- Financial Review, 2018
This article talks about the various ways in which companies raise capital and also discusses the implications and effects of start-ups raising capital.
A company funds are raised through debt or equity in the form of shares or loans and other forms of debts. Section 1070 A of the Corporations Act, 2001 defines shares and states that it is a personal property which is evidence of ownership of a part of the company and is transferable (Gullifer and Payne 2015). Companies can issue and cancel shares based on the powers conferred under Section 124 of the Corporations Act, 2001. By virtue of the powers conferred under this Section the company can additionally issue debentures which are a form of debt.
‘I was effectively a slave’: broken Red Rooster and Oporto franchisees- Waters, 2018
This article discusses the consequences of breach of fiduciary duties by directors for the interests of the stakeholders. This also discusses the remedies available to members under the Corporations Act, 2001 in case of such breaches.
There are various remedies available to members in case their interests are not adhered to (Smith and Duke 2014):
- Oppression remedy: This is provided for under Section 232 of the Act.
- Winding up: The members have the right to initiate winding up proceedings against the company.
- Injunction: The members of a company can ask for an injunction against a particular action as provided for in Section 1324 of the act.
- Derivative actions: These are applicable when the company cannot initiate proceedings against itself.
- Personal action: This is when the member claim a breach of the duties of the directors or officers under common law.
Reference list
ABC News. (2018). ASX proposes tougher governance guidelines. [online] Available at: https://www.abc.net.au/news/2018-05-02/asx-toughens-governance-standards/9719284 [Accessed 7 May 2018].
ABC News. (2018). Sydney cosmetics company takes on US retail giant over Bondi Beach trademark. [online] Available at: https://www.abc.net.au/news/2017-07-26/bondi-beach-at-centre-of-international-trademark-tussle/8741084 [Accessed 7 May 2018].
Armour, J. and Ringe, W.G., 2013. European company Law 1999-2010: renaissance and crisis. Law Ukr.: Legal J., p.144.
CCASA. (2018). It Might Be Time to Update Your Company Constitution | CCASA. [online] Available at: https://www.ccasa.com.au/it-might-be-time-to-update-your-company-constitution/ [Accessed 7 May 2018].
Ferran, E. and Ho, L.C., 2014. Principles of corporate finance law. Oxford University Press.
Financial Review. (2018). ASIC eyes case against CBA board. [online] Available at: https://www.afr.com/business/asic-may-pursue-case-alleging-cba-directors-breached-duties-20170810-gxtgrf [Accessed 7 May 2018].
Financial Review. (2018). Director liability laws onerous, confusing: lobby group. [online] Available at: https://www.afr.com/news/special-reports/corporate-reporting/director-liability-laws-onerous-confusing-lobby-group-20150205-141pd7 [Accessed 7 May 2018].
Financial Review. (2018). Why start-ups shouldn’t raise capital. [online] Available at: https://www.afr.com/brand/boss/why-startups-shouldnt-raise-capital-20180116-h0j833 [Accessed 7 May 2018].
Gullifer, L. and Payne, J., 2015. Corporate finance law: principles and policy. Bloomsbury Publishing.
Haldane, A., 2015, May. Who owns a company?. In Speech, University of Edinburgh Corporate Finance Conference, May 22nd.
Hannigan, B., 2015. Company law. Oxford University Press, USA.
Hanrahan, P.F., Ramsay, I. and Stapledon, G.P., 2013. Commercial applications of company law.
McQueen, R., 2016. A Social History of Company Law: Great Britain and the Australian Colonies 1854–1920. Routledge.
Riaz, Z., Ray, S., Ray, P.K. and Kumar, V., 2015. Disclosure practices of foreign and domestic firms in Australia. Journal of World Business, 50(4), pp.781-792.
Sealy, L. and Worthington, S., 2013. Sealy & Worthington’s Cases and Materials in Company Law. Oxford University Press.
Smith, R. and Duke, A., 2014. Agreements and competition law in Australia. Competition and Consumer Law Journal, 22, pp.54-79.
The Sydney Morning Herald. (2018). The Business Structure. [online] Available at: https://www.smh.com.au/business/small-business/the-business-structure-20090622-ctk5.html [Accessed 7 May 2018].
Thestar.com.my. (2018). Payout Power: Singapore Loves Dividends, Australia Most Generous – Business News | The Star Online. [online] Available at: https://www.thestar.com.my/business/business-news/2018/01/09/firms-in-asia-among-most-generous-with-dividends/ [Accessed 7 May 2018].
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