The Issue

Discuss about the Corporations Law for Rule and Impact of Registration.

The issue is regarding steps and provisions of company’s incorporations including, selection of name, office, and method of submitting application, rules, and impact of registration.

The arguments, in this case, will revolve around the sections of incorporating a company provided under the Corporations Act 2001. The sections include various provisions which founders have to follow while establishing a corporation.

As per the section 112 of Corporations Act 2001, there is two type of company, public, and proprietary (Act 2001). There are four types of public enterprises:

• No liability
• Unlimited share capital
• Limited by guarantee
• Limited by shares

Proprietary corporations are divided into two parts:

• Unlimited by share
• Limited by share capital

The provision relating to the name of a company provided under section 148 of the act. The name selected by a new corporation must be available along with Australian Company Number. While incorporating a public enterprise, it is necessary that word ‘Limited’ is added at the end of the title. In case of a proprietary firm, the word ‘Proprietary Limited’ is required to be added in the end. The name of unlimited proprietary firms must add ‘Proprietary’ at the end of the title, and no liability organisations add ‘No Liability’ word in their title (Barrett 2010).

The section 148 of the act requires that the name of an enterprise must not be identical or confusingly similar to another organisation’s title. This article also provides the regulations regarding unacceptability of specific names which are rejected by ASIC or government departments. For example, a company cannot incorporate with the word ‘Federal’ or ‘Commonwealth’ in their title because it shows their connection to government, which can be confusing for the public. The words or titles rejected by ASIC cannot be used by organisations as their name (Lipton 2007).

Section 152 of the act provides provision regarding reservation of a name; an individual can check the availability of a title in National Names Index which is provided over the online website of ASIC (ASIC n.d.). It is necessary that such party must reserve the name by submitting an application in prescribed format to ASIC. ASIC reserve such name for two months, which can be extended by providing a written form for an extension for next two months.

As per section 119A of the act, a company is required to select a registered office under its jurisdiction. The jurisdiction of corporations is situated in a particular state or territory. ASIC provides the name of company’s registered office in its registration certificate. As per Cassidy (2006), the legal rights and abilities of a corporation did not change according to state or territory regulations. An enterprise adds its proposed registered office address in the application which became permanent address after the incorporations. Usually, corporations select a registration office near their place of working. As per section 144, it is compulsory for enterprises to write their name in front of the place of business.

Relevant Law

The corporations are required to provide their shareholding structure while applying for registration, which includes details regarding members and their shareholdings. The consent of each member is required for incorporation, whose name is written on the form or who has signed the application. This information must be correct and collected without any fraud by the company, and they must be submitted at the time of registration (McBurnie and Ziguras 2001).

As per section 136, a company can adopt their constitution before or after their incorporations. The constitution includes a contract of director and other members of the corporation. The constitution provides guidelines regarding power and duties of directors and other members. Section 141 of the act includes the provision of replaceable rules in an enterprise. The replaceable rules manage the function of the internal department of firms, which include maintaining of books of accounts, appointment & disappointment of directors, the power of members and many more provisions. For ‘No Liability’ and special purpose corporations it is compulsory to adopt constitution instead of replaceable rules. As compared to replaceable regulations, the constitution is a safer option because it covers a broader range of situations and it is easy to implement (Robinson 2011).

As per section 117 of the act, a company can be registered by two methods, through a private service provider or directly through ASIC. Following items must be included in the application for registration:

• Details of the enterprise, including, name, address, authorised share capital, register office, type of business and timings
• Details regarding members such as name, address, personal information and the number of shareholdings
• Copy of corporation’s constitution or bylaws
• All aspects must be in a prescribed form

All other regulation provided by ASIC must be fulfilled by the firm while applying for registration. ASIC apply fees over every paper or file submitted by any party. The fees for reserving a name of the enterprise is AU$48. The registration fee for a corporation with share capital is AU$479 and an AU$395 for a company without share capital (ASIC n.d.).

The section 119 of the act provides the effect of incorporations; a company acquires various rights and responsibilities right after its registration. The separate legal entity of the enterprise formed right after its incorporation. As per Tomasic, Bottomley and McQueen (2002), after the incorporation, the organization is required to perform various on-going requirements such as maintaining necessary documents, displaying of name & ACN over registered office and records.

Applicability and Conclusion

For the business of Richard and his sons, a proprietary organisation is a far better option than a public company. A proprietary company will provide them various benefits including more control on operations, less legal requirement, no personal liability and much more. Both the names suggested by Richard and his sons are available over the National Names Index, meaning they can select any one of them. Richard operates his business in Hunter Valley, which is where the register office of the company must be situated.

Type of Companies

For Richard’s business, the constitution is a better option those replaceable rules. The constitution covers broader situations, and it is more rigid, which provide safety in business operations. The procedure of applying for registration as mentioned above, along with the impact of incorporation. In conclusion, Proprietary Corporation is a beneficial option for Richard’s business because it will assist in its growth and expansion.

The legal issue is Cosmo Mining Ltd liability for negligence, towards their former workers and society. Further, the issue is relating to the piercing of corporate veil in Cosmo Mining Services Pty Ltd case.

The argument would include the interpretation of the principle of the lifting of corporate veil and provision of tortious liability for negligence by a business, as provided under section 5 of Civil Liability Act 2002.

As per the Corporations Act 2001, every company has a different legal entity from its members. The directors or management of an enterprise cannot be held accountable for the activities of the business. Any party aggrieved due to actions of a corporation has right to file a suit against such firm, but not against the directors or members. The shield provided to the directors against the actions of a company is called corporate veil. In case of fraud or illegal activities of a firm, the court has right to lift such corporate veil and held directors liable for their decision.

In this case, Terry has filed a suit against CMS corporations which has been wound up by the voluntary decision of its shareholder. The CMS Company was a subsidiary of CM enterprise; they controlled all the business activities of CMS. Terry is stating that due to the principle of corporate veil and liability of negligence, the shareholders of CM are responsible towards the responsibility of CMS Company.

• In CSR v Young (1998) Aust Tort Reports 81-468 case, Australian Blue Asbestos Ltd appointed its CSR Company as an agent to conduct a business transaction for them. This relationship provides the holding company full control over the operation of the subsidiary The decision of holding firms was behest upon the management of the subsidiary organisation. The actions of ABA caused cancer to a kid living near the town; the child filed a suit against both ABA and CSR Company. The court provided that both the holding and subsidiary corporation has a liability of care towards their employees as well as citizens (Warren 2016).
• In Smith, Stone & Knight Ltd v Birmingham Corp (1939) 4 ALL ER 116 case, the holding corporation failed to transfer the ownership paper of a waste paper business to its subsidiary firm. After finding out this fact, the court provided that subsidiary is just an agent of the holding firms and the real owner of the business is holding enterprise. In its decision, the court held that the revenue, investment, workers and control of subsidiary firm should be determined as holding corporations business (Nyombi 2014).
• In Gilford Motor Co. v Horne (1993) Ch 935 case, an employee enters into a contract with his employer for not performing in related corporate job. The employee founded an organisation after quitting his work, and such corporation performs similar work for the first company. The employee’s family member was the shareholder in such enterprise, and the employee himself was the director. The employer sued the employee for breaching the contract; the court decided that employee formed the company as a sham and façade. The judge can ignore the provision of corporate veil if the corporations are created just as sham or façade (Grantham 2013).

Form the decision of cases mentioned above; it can be concluded that Terry can file a suit against CM Corporation because they were acting as an agent for CMS and they were in complete control of their operations. The new company called Lazarus Pty Ltd is a sham corporation. Therefore, it can be held liable toward a former employee of CMS and society.

The Creasey v Breachwood Motors Ltd (1993) BCLC 480 case is an excellent example of the liability of a sham corporation. In this case, Breachwood Welwyn Ltd unlawfully discharged Creasey, who was their general manager. Creasey files a suit against the enterprise, but the company was wound up by its directors before the settlement of the claim. The assets were transferred to Breachwood Motors, and all the amount outstanding were settled by them, except for Creasey’s claim. The court decided that Breachwood Welwyn Ltd breaches the provision of spate legal entity and the Breachwood Motor Company is a sham and façade (Saxena 2010). A similar principle applies over Lazarus Pty Ltd, the directors of CM uses these corporations to avoid the liability of CMS Company. Therefore, they shall be held liable towards the actions of CMS enterprise (Hameed 2012).

Although, the CMS has been voluntary wound up by the unanimous decision of its shareholders, the liability of the corporation toward former worker and citizens did not dismiss. The motive of wound up was to avoid the accountability by the shareholders. Therefore, the court can hold the shareholders and directors of CMS personally accountable towards Terry and the residents of Gunbarrel.

Conclusion

In conclusion, CM was an agent of CMS, but they control the entire operation of the company which makes them liable towards the obligations of CMS. The reason for wound up was to avoid the responsibility of the company, and the new corporations were just a sham or façade to confuse the public. As per the provision of the lifting of the corporate veil, the court can hold directors and member of CM liable toward Terry and the residents of Gunbarrel.

References

Act, C., 2001. Corporations act 2001. Commonwealth of Australia.

ASIC, n.d. Schedules of corporations fees. ASIC. Retrieved from < https://asic.gov.au/for-business/payments-fees-and-invoices/asic-fees/schedules-of-corporations-fees/ >

ASIC, n.d. Search ASIC Registers. ASIC. Retrieved from < https://connectonline.asic.gov.au/RegistrySearch/faces/landing/SearchRegisters.jspx?_adf.ctrl-state=h8lii3ryc_4 >

Barrett, R.I., 2010. Making the acquaintance of Pilcher, Uther and Baldock:[The first annotated Australian book on company law was Butterworth’s’ Pilcher, NG; Uther, AW and Baldock, WJ The Australian Companies Acts Reconciled and Annotated'(1937).]. Law Society Journal: the official journal of the Law Society of New South Wales, 48(7), p.30.

Cassidy, J., 2006. Concise corporations law. Federation Press.

Grantham, R., 2013. The corporate veil: An ingenious device. U. Queensland LJ, 32, p.311.

Hameed, I., 2012. The Doctrine of Limited Liability and the Piercing of the Corporate Veil in the light of fraud: A critical multi-jurisdictional study.

Lipton, P., 2007. A history of company law in colonial Australia: Economic development and legal evolution. Melb. UL Rev., 31, p.805.

McBurnie, G. and Ziguras, C., 2001. The regulation of transnational higher education in Southeast Asia: Case studies of Hong Kong, Malaysia and Australia. Higher Education, 42(1), pp.85-105.

Nyombi, C., 2014. Lifting the veil of incorporation under common law and statute. International Journal of Law and Management, 56(1), pp.66-81.

Robinson, T., 2011. Which Is Better For A Company, A Constitution Or Replaceable Rules?. Everingham Solomons. Retrieved from < https://eversol.com.au/2011/05/27/which-is-better-for-a-company-a-constitution-or-replaceable-rules/ >

Saxena, H., 2010. Lifting of Corporate Veil.

Tomasic, R., Bottomley, S. and McQueen, R., 2002. Corporations law in Australia. Federation Press.

Warren, M., 2016. Corporate structures, the veil and the role of the courts. Melb. UL Rev., 40, p.657.