Registration of Companies
Discuss about the Monitoring Corporate Governance Activities for Australian Commonwealth.
Corporations incorporated within and carrying on business activities within the jurisdiction of the Australian Commonwealth are governed and regulated under the Corporations Act, 2001. The provisions of this act define and administrate all processes of the formation and functioning of corporations. Registration of companies is defined under Part 2A.2 of the Corporations Act, 2001. Section 112 of the Corporations Act, 2001 defines the types of companies that can be registered as a body corporate (Bottomley 2016). Section 117 of the Corporations Act, 2001 defines the requisites of a successful registration application for the registration of a company. It lists various disclosures that need to be made by the promoters when proposing the incorporation of a company. As per Section 117 (2) (d) it is mandatory for the applicants to provide the date of birth and place of birth of all individuals who consent to becoming directors. In this case the original date of birth of the consented director was not disclosed and a fraudulent date was stated. In light of the ASIC would be able to cancel the registration process and deem the company unregistered.
The Corporations Act, 2001 recognizes single director/shareholder companies as corporations and thus affords all the protections prescribed under the act. However since these are owned and administrated by one person it is impractical to treat these companies as separate legal entities in light of the liability obligation that it precludes the shareholder/director from (Schultz, Tian and Twite 2013). In case of secured and unsecured debts the same would be owed to the creditors by practically the shareholder/director, yet in the event of a dispute the shareholder/director would be absolved from all responsibility.
“Ultra Vires” literally translated means beyond one’s powers and thus states that any act that is beyond a particular body or individual’s powers is null and void in law. In company law the doctrine of ultra vires applied to acts that go beyond the powers of a company and the same would be deemed null and void before the law (Lee and Fargher 2013). However in light of common law developments relating to the doctrine the same has been limited to a very narrow scope which only pertains to acts beyond the object clause of an incorporated company and not any other acts. Thus in essence any act that is beyond the company’s powers but not beyond the object clause of the company would not be deemed null and void. In Australia with the advent of drafting company constitutions that do not require an object clause the doctrine in operation is nearly obsolete. However the same is yet to be abolished conspicuously by judicial pronouncements.
Types of Companies and Liability Obligations
Directors of an organization are placed at the apex of the organizational hierarchy and thus they can only be removed as per due process of law. Depending on the type of company the Corporations Act, 2001 provides for different processes for removal of directors. In case of public companies the directors must be remove through the procedure prescribed under Section 203D, this section provides that the shareholders or members of a company can remove the same by the passing a resolution which receives ascent of the public. In case of private companies, this process is defined under Section 203C of the act and also provides for a removal process through the passing of a resolution.
As per Section 126 of the Corporations Act, 2001 a company is liable for the acts of an agent when the agent exercises the powers of the company to ratify contract (Stephens 2017). Thus if the employee enters into sale contract the company would be liable for any disputes arising out of it.
According to the provisions of Section 127(2) of the Corporations Act 2001, it is important on the part of the company to execute a document by affixing a common seal which must be witnessed by at least two directors of the company (Welsh 2014). Therefore, in the present case study, it is important on the part of Shirley and Laverne to prove that the contract has been executed by affixing a common seal with company Y which has been witnessed by two directors of company C.
In order to ensure that both Shirley Laverne is not personally liable for the actions on the part of company C under the executed contract, the provisions of Section 131 of the Corporations Act 2001 (Cth) can be relied upon. According to Section 131, a right is entrusted to an outsider for enforcing a pre-registration contract against the company, if such contract has been ratified after registration of the company. It is worthwhile to refer here that, if the company is not registered, then the person entering the contract on behalf of the company is held personally liable for the damages. The provisions of Section 131 only apply in contracts which are being executed before the company is registered.
- According to the provisions of Section 203C, a proprietary company has the power to replace or remove a director from the office by resolution with the appointment of another director.
- It is worthwhile to refer here that, every director shall have one vote and the decisions shall be carried with the help of a majority on a show of hands. However, in certain cases, the individual directors may be restricted from voting rights as a result of conflict of interests.
The business judgment role is regarded as a form of legal defense to the directors for the purpose of establishing the fact that these directors have acted with due care and diligence and for the best interest of the company (De Bakker et al. 2013). This rule was introduced in the Corporations Act by the government for the purpose of recognizing the nature of commercial realities and the consequences of breach of director’s duties. The rule was allowed due to the reason that there exists no certain commercial decision or action.
Doctrine of Ultra Vires
The statement can be agreed because there is a duty on the part of the directors to act in good faith and in the best interests of the company. The nature of the duty is such that, the directors are required to act honestly in order to ensure benefit of the shareholders (Whincop 2017). It is worth mentioning that, if the director exercises the power for the purpose of gaining personal benefit, then it signifies improper purpose and failure to act in good faith and for the best interests of the company.
A breach of fiduciary duties can be ratified in case of breach of duties in regard to certain conditions. If there is a breach of fiduciary duty, there has to be a full disclosure. As a result of it, the breach of duty shall be ratified by the Board by relying upon the circumstances of the individual involved in such breach (Xynas and Yogaratnam 2017). Ratification would not be permitted in cases where it constitutes fraud on the minority of misrepresentation of company resources. This is due to the reason that, a breach of statutory duty cannot be cured by ratification and more importantly in cases involving criminal liability.
Directors of a corporation have the right to delegate their functions through the powers conferred under Section 190 of the Corporations Act, 2001. As per Section 190 (1) the exercise of the delegated power would be treated as if it had been carried out by the director himself. However under grounds prescribed under Section 190 (2) of the act, the director may be absolved of all responsibility for the exercise of the power. Under Section 189 of the Corporations Act, 2001 a director may rely on information and advice from senior executives. This power to rely on information from employees in conferred under Section 189 (a) (i) of the Corporations Act, 2001.
A derivative of the common law fiduciary duties of a director the “proper purpose” obligation refers to a duty of a director to act in the best interests of the company when exercising his powers. Any exercise of power that is not for the benefit of the corporation would be considered as an improper act and hence would not be for a purpose. This is because directors have all administrative powers in the organizational framework and the company must act in the best interests of the shareholders and other stakeholders. Thus when directors exercise their powers improperly it results in the company not acting in the best interests of the stakeholders. This is a corporate governance failure that could be immensely detrimental for the corporation and hence the statutory obligations under Section 180-184 of the Corporations Act, 2001 were enacted. This obligation of directors to act in the best interests of the company and for a proper purpose ensures that directors of a company would act in the best interests of the stakeholders.
Reference List
Bottomley, S., 2016. The constitutional corporation: Rethinking corporate governance. Routledge.
De Bakker, F.G., Den Hond, F., King, B. and Weber, K., 2013. Social movements, civil society and corporations: Taking stock and looking ahead. Organization studies, 34(5-6), pp.573-593.
Lee, G. and Fargher, N., 2013. Companies’ use of whistle-blowing to detect fraud: An examination of corporate whistle-blowing policies. Journal of business ethics, 114(2), pp.283-295.
Schultz, E., Tian, G.Y. and Twite, G., 2013. Corporate governance and the CEO pay–performance link: Australian evidence. International Review of Finance, 13(4), pp.447-472.
Stephens, B., 2017. The amorality of profit: transnational corporations and human rights. In Human rights and corporations (pp. 21-66). Routledge.
Welsh, M., 2014. Realising the public potential of corporate law: Twenty years of civil penalty enforcement in Australia. Fed. L. Rev., 42, p.217.
Whincop, M.J., 2017. Corporate governance in government corporations. Routledge.
Xynas, L. and Yogaratnam, J., 2017. Corporations law: in principle. Thomson Reuters.
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