Business Organisations Law Guidebook

202 Pages·2015·15.517 MB·English

by  Michael A. Adams, Marina Nehme

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Your guide to the essentials of business iDess O
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Learn how to link the key concepts from your lectures, textbooks and n
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law and develop legal problem-solving skills. t
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This guidebook will help you navigate through the fundamental points n
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of business organisations law using:
• clear and concise explanations of what you need to know
• cases, statutes and sections to remember
• assessment preparation sections
• diagrams and tables to help explain difficult concepts and
complex material
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• up-to-date cases and legislation. ditiocon
nd Business
Michael A Adams is Dean of the School of Law, University of
Western Sydney. OrganisatiOns
na
Marina Nehme is a Senior Lecturer in the Faculty of Law, University ed
ha
of New South Wales. mems Law
guiDeBOOK
Second Edition
ISBN 978-0-19-559397-6
michael a adams
9 780195 593976
marina nehme

Business
OrganisatiOns
Law
guideBOOk

Business
OrganisatiOns
Law
guideBOOk
Second Edition
Michael A Adams
Marina Nehme
1
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© Michael A Adams and Marina Nehme 2015
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Second edition published 2015
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National Library of Australia Cataloguing-in-Publication data
Adams, Michael A. (Michael Andrew), Author
Business organisations law guidebook / Michael Adams, Marina Nehme.
2nd edition.
ISBN 978 0 19 559397 6 (paperback)
Includes index.
Commercial law—Australia—Handbooks, manuals, etc
Business enterprises—Law and legislation—Australia—Handbooks, manuals, etc
Corporation law—Australia—Handbooks, manuals, etc.
346.9407
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v
COntents
List of Figures and Tables vii
Preface viii
Chapter 1: Partnerships, Trusts and Associations 1
1.1 Introduction 1
1.2 What are the legal requirements of a sole trader? 3
1.3 What are the legal issues for partnerships? 4
1.4 What is a joint venture? 10
1.5 What is a trust? 11
1.6 What is an association? 13
Chapter 2: Australian Corporate Law 18
2.1 Introduction 18
2.2 Corporations Act 2001 (Cth) (Corporations Act) 19
2.3 Australian Securities and Investments Commission
and other bodies 27
2.4 How does the doctrine of precedent operate in corporate law? 31
2.5 Types of companies 32
2.6 Promoters 35
2.7 What are the consequences of registration (incorporation)? 39
2.8 Lifting the veil of incorporation 40
Chapter 3: Corporate Constitutions and Replaceable Rules 45
3.1 Introduction 45
3.2 Converting a memorandum and articles 46
3.3 Corporate constitutions and replaceable rules 46
3.4 Section 140(1) (statutory constitutional contract) 51
3.5 The objects clause and why it is a problem 54
3.6 Altering the company’s constitution 56
Chapter 4: Corporate Liabilities 60
4.1 Introduction 60
4.2 Primary and secondary (vicarious) liability 61
4.3 Can companies commit crimes? 61
4.4 Can companies be liable under tort law? 66
4.5 How are corporations held liable in contract law? 67
4.6 Are there any statutory protection rules for the protection
of third parties? 69
4.7 Things to remember 72
Chapter 5: Capital and Fundraising 74
5.1 Introduction 74
5.2 Membership 75
vi ConTenTS
5.3 Share (or equity) capital 76
5.4 What types of shares are available? 77
5.5 What are the liabilities of a shareholder? 78
5.6 What is the basic rule of maintenance of share capital
and its exceptions? 79
5.7 Debt capital 85
5.8 Fundraising 87
Chapter 6: Company Officers and Management 94
6.1 Introduction 94
6.2 Definition of officers 96
6.3 Role of the company secretary and directors 97
6.4 organic theory and decision making 101
Chapter 7: Officers’ and Directors’ Duties 107
7.1 Introduction 108
7.2 Fundamental duties of officers 108
7.3 What duties are owed by an officer? 111
7.4 Insolvent trading 122
7.5 Insider trading 126
7.6 Sanctions and remedies 128
Chapter 8: Protection of Shareholders 136
8.1 Introduction 136
8.2 What are the key membership rights? 137
8.3 Majority rule in Foss v Harbottle 143
8.4 Statutory minority protection 145
Chapter 9: Companies in Financial Trouble 153
9.1 Introduction 153
9.2 Schemes of arrangement and receivership 154
9.3 Voluntary administration 157
9.4 Voluntary winding up 158
9.5 Compulsory liquidation 159
9.6 Powers and duties of liquidators 162
9.7 Voidable transactions 162
9.8 Things to remember 163
Table of Cases 166
Table of Statutes 171
Index 177
vii
List Of figures and taBLes
figures
Figure 1.1: Division of power between state and federal levels 2
Figure 1.2: elements of a partnership 7
Figure 1.3: Structure of an unincorporated association 14
Figure 1.4: Liability in an unincorporated association 16
Figure 2.1: Types of corporations in Australia 33
Figure 2.2: Liability for pre-registration contracts 39
Figure 2.3: The company as a separate legal entity 40
Figure 3.1: Gambotto case finding 58
Figure 4.1: How a company may enter into a contract 69
Figure 5.1: Raising secured capital 86
Figure 6.1: organic theory of corporations 102
Figure 7.1: The duties owed by an officer 111
Figure 7.2: The enforcement pyramid 133
Figure 9.1: Types of voluntary winding up 158
Figure 9.2: Grounds for compulsory winding up 159
Figure 9.3: Voidable transactions 163
tables
Table 1.1: Advantages and disadvantages of sole trader structure 3
Table 1.2: Advantages and disadvantages of a partnership 10
Table 2.1: Corporations Act structure 22
Table 2.2: Corporate law reform key dates 24
Table 2.3: Classification of Australian corporate law cases by court, 1991–2009 31
Table 2.4: Classification of Australian companies 1991–2014 34
Table 3.1: Where internal governance rules can be found 47
Table 3.2: Provisions that apply as replaceable rules (s 141) 49
Table 5.1: General buy-back procedure: steps and applicable sections (s 257B) 81
Table 5.2: number of prospectuses lodged with ASIC over the years 88
Table 7.1: Contraventions of the Corporations Act per defendant 118
Table 7.2: Quick summary of sanctions and remedies 129
Table 9.1: Different types of external administration 164
viii
PrefaCe
‘Business organisations’ is a broader concept than that implied by the traditional
name of ‘company law’ (the name of the first edition of this book in the oxford Law
Guidebook series). Business organisations include sole traders, partnerships and
companies and are covered by a mixture of laws. The most common is ‘company
law’ (the more traditional name); its more contemporary equivalent, corporate law,
is a key area of law for all those studying business and commerce. In particular,
if you want to be a qualified accountant it is mandatory to study company law.
However, this subject is quite detailed and understanding doesn’t jump off the pages
for students. This book—and in particular this new edition—is designed to make it
easier to grasp the key concepts and to fly through the assessment tasks in the least
stressful way.
The authors have 30 years of experience of teaching company law to business
students at a variety of universities, including the University of Technology Sydney,
the University of Western Sydney and University of new South Wales, as well as in
the United States, United Kingdom, Malaysia and China.
The book has a focus on key principles, such as a corporation having a separate
legal entity as established in Salomon v Salomon & Co Ltd [1897] AC 22, through to
the High Court of Australia’s application of the principle in Wellington Capital Ltd v
ASIC [2014] HCA 43 (5 november). Since the last edition some major cases have
arisen, such as the James Hardie litigation ending in two significant High Court cases
(ASIC v Hellicar [2012] HCA 17; Shafron v ASIC [2012] HCA 18). But for business
and commerce students, it is cases such as Hadid v Lenfest Communications
Inc [1999] FCA 1798 that are also of interest. In that case, a shareholder and
director of a group of businesses sued a company for breach of contract, breach
of fiduciary duty, deceit, misleading conduct under the old new South Wales and
Commonwealth fair trading legislations (now called the Australian Consumer Law)
and under the Corporations Law. In fact, the plaintiff did not win on any one of all
the many grounds, but the case still demonstrates how the law can be used in the
business world and why it is so important to understand the various legal issues
surrounding business organisations.
Professor Michael Adams wrote an earlier version of the book as part of the
Cavendish essential Series in 2002, followed by a second edition in 2005 called
Essential Corporate Law. This latest edition of the book is still part of oxford
University Press’s Guidebook series, previously titled the Company Law Guidebook,
and has been renamed the Business Organisations Law Guidebook. To give the book
a more contemporary feel, Michael was joined as author by one of his top lecturers
in corporate law and then doctoral student, Dr Marina nehme. Marina has a lot of
experience with teaching company law to both undergraduates and to Masters of
Professional Accounting students.