Corporate Law (BLAW20001) Summary Notes (Complete Lecture + textbook notes)
This document covers the following topics:
Week 1 – Intro to company law, legal nature of companies, limited liability
Week 2 – Piercing the corporate veil, types of companies, corporate groups, internal company management
Week 3 – Company decision making, directors’/members powers, varying class rights
Week 4 – Corporate capacity, transacting by companies
Week 5 – Members’ meetings (agenda, notice, conduct) & irregularities
Week 6 – Directors’ Duties Part 1 (Intro to Duties, s180, s588G)
(duty of care, skill and diligence, duty to prevent insolvent trading)
Week 7 – Directors’ Duties Part 2 (s181, s254)
(duty to act in good faith in the best interests of the company for a proper purpose, dividends)
Week 8 – Directors’ Duties Part 3 (s182, s183, s191, s208)
(improper use of position/information, duty to prevent conflicts of interest, related party transactions)
Week 9 – Share capital (increase and maintenance) Week 10 – Reporting & Disclosure requirements
Week 11 – Members’/companies’ remedies and rights
Appendix – directors’ duties question frameworks, civil penalty
provisions, criminal penalties, members’ personal rights
WEEK 1
• Intro to company law
• Legal nature of companies, limited liability
• Shares (equity capital)
• Some key terms
Companies as a form of business organisation
1-050 What is a company?
• Company = artificial person created by the law
• Function of company: to hold assets (property) and to carry on a business or other activity, as an entity separate from the participants (investors, managers) in that business or activity
• To use a company to carry on a business activity, you need to make an application to ASIC the Commonwealth government agency
• ASIC will then use its powers to register the company (or de-register)
1-240 How is a company's management structured?
• Decision making for managing companies includes:
• Deciding on appropriate capital structure and dividend policy
• Deciding on the nature and form of company's activities
• Who are the company's officers, and what is their role?
• OFFICERS: persons responsible for its management
• DIRECTORS: selected by shareholders, responsible for managing business and governance (depending on internal governance rules)
• In small companies: directors will make most of the ongoing decisions
• In large companies: will delegate management functions to company's executives, and setting broad strategic direction
▪ EXECUTIVE DIRECTORS: those who devote ALL of their working time to manage the company's affairs
▪ NON-EXECUTIVE: not employed in the company's business, provide an outsiders contribution and oversight to the board of directors
• SECRETARY: responsible for certain administrative and reporting functions set out in the law
1-260 What are a company's key legal attributes?
• Makes companies into legal entities separate from their participants
• Law confers on companies the legal capacity of a natural person
• Perpetual succession - company exists indefinitely until it is wound up
• Limited liability on members (limited by shares)
What is company law?
2-100 What is 'company law'?
• Company law:
• Provides for the formation and termination of companies
• Confers on companies some special attributes (e.g. separate legal personality)
• Sets out rules governing duties of, and (i) relationships between participants in companies (e.g. relationship between directors and shareholders), and (ii) also between the company and its participants
• Facilitates dealings between companies and outsiders (e.g. external stakeholders)
• Corporate finance (enables companies to raise equity capital)
• Implications for those outside dealing with a company rather than an individual - e.g. rules determining when the actions of the officer will be treated as actions of the company so that the company is liable to the person affected by crime/negligence in this event
• Company law developed alongside the company to regulate the relationship between:
• Participants in the company
• Company and the state
• Company and those with whom the company had dealings.
• Aims/purposes include:
• Investor protection
• Commercial stability/consumer confidence
• Balancing competing interests
• Certainty - standard form contract
• As legal entities, companies are subject to the law in the same way as all other legal persons.
2-120 What does company law cover?
How does company law provide for formation/termination of companies and confer their characteristics?
• Companies are artificial legal persons created/destroyed by state - laws are necessary to confer or withdraw their existence
• Characteristics of companies provided for by company law:
• Separate legal personality
• Corporate capacity
• Limited liability
How does company law govern the internal management of companies?
• How the members of the company relate to each other and to the directors and other officers
• Company law establishes the rules for managing companies
• Appointment of officers
• Prescribing decision making powers of members and directors
• Imposing duties on officers in the performance of their functions and limitations on members' exercise of their voting powers
• Governs the mechanics of running a company - framework for company's internal governance rules
How does company law apply to corporate finance?
• Company law rules allow for share issues which provide for maintenance of company's issued capital
• Proivdes for the issue of debentures by companies
• Relationship between companies and creditors
How does company law affect dealings between companies and outsiders?
• A person may come to deal with a company voluntarily (through a contract)
• Or involuntarily (if a company commits a wrongdoing that is capable of legal remedy)
• Companies are artificial persons that can only act through individuals
• When is the individual's actions treated as actions of the company so the company is liable for those actions?
2-160 What are the main sources of company law?
• SOURCES OF COMPANY LAW:
• The Corporations Act
• Case law
• Corporations Regulations, ASIC, AASB, ASX Listing Rules
2-200 THE CORPORATIONS ACT
• CORPORATIONS ACT: Key legal rules that govern or facilitate the formation, management, operation and termination of companies
• Regulates takeovers
• Provides for registration and operation of managed investment schemes
• Sets out the licensing and disclosure rules that apply to financial products, financial services and financial markets
• Replaced Corporations Law on 15 July 2001
Company case law
Company law rules can also be found in:
• Case law (precedent)
• Corporations Regulations
• ASIC Act
• ASIC exemptions, modifications, guidelines
• Accounting standards
• ASX Listing Rules
2-310 What is case law?
• Decisions of courts operate as binding statements of the way in which statutory provisions are to be interpreted
• Case law can be a source of both:
• Additional binding rules of law not contained in Corporations Act
• Binding statements governing interpretation of provisions of the Corporations Act
How do we use case law to find legal rules?
• Australian system: judges can only make decisions on the issues brought before them by the parties to the litigation and on the particular facts of the case presented to them.
• ADVERSARIAL SYSTEM: parties to litigation are responsible for
discovering/presenting facts to the court and preparing arguments about how the law should be applied
• The judgement contains:
• Outline of facts presented to judge
• Summary of opposing legal arguments put by parties
• Judge's decision on what the correct law is and how it should be applied
• Judge's decision is a statement of the law as it applies to the particular facts before the court
Case law operates as a guide to what the law is, how it should be applied, when the facts in issue are similar to the ones on which an earlier, binding decision has been reached.
Some important characteristics of case law
• Courts must wait for parties who have a disagreement to come before them to ask for adjudication on an issue
• If nobody has brought a dispute on an issue before a court, there will be no applicable case law
• Two important implications for company law:
1. Company law often involves commercial disputes - because of delays and costs in litigation, commercial parties will prefer to come to an arrangement privately to settle disputes without going to court
2. There is a considerable delay between the time at which a new provision is included in the Corporations Act and the time at which it comes before the courts for interpretation
Applying company law to legal problems
2-400 How do you use company law to answer a legal question?
IRAC APPROACH
• I = Issue
• R = Rule of law
• A = Application to the facts
• C = Conclusion
ISSUE - which issues are involved in the question
• Must decide which particular part or topic of company law applies to the facts
RULE OF LAW: what precise legal rules are relevant to the facts
• State clearly where the legal principle comes from and which it is
• Write the correct section number (for a rule)
• For a principle for a legal decision from a court, write the name of the case
o This is called 'authority'
APPLICATION OF RULE: how does it apply to the facts of the problem
• Sometimes clear cut, other times need to argue both sides of the argument (even if the question asks you to advise only one party)
CONCLUSION
• Come to a conclusion based on your argument
• Make sure that each step of argument is targeted to that conclusion
Legal nature of companies
3-100 What is separate legal personality?
• DOCTRINE OF SEPARATE LEGAL PERSONALITY: law treats a company as being a separate person from its members and those who manage its operations
o Means the company continues unchanged even if the identity of the participants in it changes
o Company can incur and receive obligations and hold property in its own name
• Can lend or borrow money
• Enter into contracts with participants and with outsiders such as suppliers and customers
• Be the registered proprietor of land
• Be a lessee or lessor
• Operate a bank account and take out insurance
• Act as trustee of a trust in its own right
