Law of Business in an Organisation

Question: Describe the law of business in an organisation. Answer: Propriety Limited Company A Propriety Company is a company, which is not a public company and is privately held by individuals. It may be either a limited company or an unlimited company. Propriety Limited Company is a propriety company in which the shareholders have a limited liability. The shareholders liability to pay off the debts of the Company extends to the amount of unpaid amount on the shares held by them (Business.vic.gov.au 2016). Procedure for registration of a Propriety Limited Company The Australian Securities and Investments Commission (ASIC) is the authority, which registers Companies in Australia. An application form has to be lodged with the ASIC for registration of a Propriety Limited Company (Asic.gov.au 2016). Section 117 of the Corporation Act, 2001 lays down the guidelines and instructions for lodging an application form with the ASIC (Legislation.gov.au 2016). According to Section 117, the details, which need to be provided for a Propriety limited Company in the application form, are as follows: a) Type of Company; b) Proposed name of the Company; c) The details (name address) of persons who consent to be member of the Company; d) The details (name, address, birth date, place of birth) of persons who consent to become a director of the Company; e) The details (name, address, birth date, place of birth) of persons who consent to become a company secretary of the Company; f) Address of proposed registered office of the Company; g) Address of proposed principal business of the Company; h) The details of shares (the class of shares and the number of shares, which the members consent to take up, provided the consent must be in writing); i) The details of the amount to be paid by the members per share including the information whether full amount of the shares shall be paid on registration or not; j) Whether, on registration, the shares are to be beneficially held by the members or not; k) Whether, on registration, the Company will have an ultimate holding company or not; l) The name of the State of Territory where the company is proposed to be registered. Registration of a Propriety Limited Company- Sample form APPLICANTS DETAILS First name: Andrew Surname: James Telephone: +61 2 8461 2327 Fax: +61 2 8461 2327 Email Address: Street Address: 109 Railway Street Suburb/City: Sydney State: NSW Post Code: 2216 DETAILS OF COMPANY Type of Company: Propriety company Limited by shares Proposed Name of Company: NEUTRELA Propriety Limited State or Territory in which the Company is to be registered: NSW Is the company a special purpose company: No Registered office: 86 Pitt Street Suburb/City: Sydney State: NSW Post Code:2000 Has the premise been occupied by the Company: Yes Principle place of business of the Company: as above DIRECTORS Director 1 First name: Stephen Surname: Stone Address of Residence Street: 321 Pitt Street Suburb/City: Sydney State: NSW Post Code: 2000 Date of Birth: 20/07/1968 Place of Birth Suburb/City: Sydney State: NSW DIRECTOR 2 First Name: John Surname: Doe Address of Residence Street: 131 Macquarie St Suburb/City: Sydney State: New South Wales Post Code: 2000 Date of Birth: 13/04/1973 Place of Birth Suburb/City: Sydney State: NSW SECRETARY First name: Mark Surname: Gomes Address of Residence: Street: 36 Market Street Suburb/City: Sydney State: NSW Post Code: 2000 Date of Birth: 16/02/1987 Place of Birth Suburb/City: Sydney State: NSW SHAREHOLDERS Shareholder 1 Full name: Andrew James Address: 109 Railway Street Suburb/City: Sydney State: NSW Post Code: 2216 Class Code of Shares Number of shares to be taken up Amount to be paid each share Total amount paid on the shares Amount unpaid each share Total amount unpaid on the shares Paid Fully (Y/N) Held Beneficially (Y/N) H 3780 $2.29 $8656.20 0 0 Y Y Shareholder 2 Full name: Mark Rawls Address: 231 Elizabeth Street Suburb/City: Sydney State: NSW Post Code: 2000 Class Code of Shares Number of shares to be taken up Amount to be paid per share Total amount paid on the shares Amount unpaid per share Total amount unpaid on the shares Paid Fully (Y/N) Held Beneficially (Y/N) H 2340 $2.29 $5358.6 0 0 Y Y Format of Consents Consent to become a Director To: NEUTRELA Propriety Limited I consent to act as a Director of this Company. In compliance with Section 201D of the Corporation Act, 2001, I hereby provide my entire details, which are as follows: First name: Stephen Surname: Stone Address of residence Street: 321 Pitt St. Suburb/City: Sydney State: NSW Post Code: 2000 Date of Birth: 20.07.1968 Place of Birth Suburb/City: Sydney State: NSW Date: 20/05/2016 Signature: Consent to become Company Secretary To: NEUTRELA Propriety Limited I do give my consent hereby to act as the Company Secretary and I hereby provide my personal details, which are as follows: First name: Mark Surname: Gomes Address of Residence: Street: 36 Market Street Suburb/City: Sydney State: NSW Post Code: 2000 Date of Birth: 16/02/1987 Place of Birth Suburb/City: Sydney State: NSW Date: 20/05/2016 Signature: Consent to become a member To: Ambition Propriety Limited I, Andrew James, do hereby give my consent to become member of the NEUTRELA Propriety Limited. The class and number of shares, which I agree to purchase, are as follows: Class of shares: H Number of Shares: 3780 I also agree to pay, in full, the total amount of the shares at $2.29 per share. Date: 20/05/2016 Signature: Register of Share Section 168 mandates a company to maintain a share register and Section 169 lays down the details to be included in the share register. (Alrc.gov.au 2016). The following details are to be incorporated in the share register: The name and address of the shareholders; The date of entry of the name of the shareholders in the register; The date of allotment of shares to the shareholders; The number of shares allotted to such shareholders; The classes of shares allotted to such shareholders; Details of paid amount on such shares; Whether full payment has been made on such shares; Details of unpaid amount on such shares. All these information have to be provided in the share register and any changes in any of this information have to be duly updated from time to time. Sample form of a share register Neutrela Propriety Limited Members Register Date of Entry Full Name Address Date of Transaction Transaction Type Class of shares Number of Shares Amount paid per share Amount unpaid per share Cessation of membership 20/05/2016 Andrew James 109 Railway Street, Sydney, New South Wales, 2216 20/05/2016 Allotment H 3780 shares acquired $2.29 0 20/05/2016 Mark Rawls 231 Elizabeth Street, Sydney, New South Wales, 2000 20/05/2016 Allotment H 2340 shares acquired $2.29 0 Internal management of Company According to Section 134, a company is governed by its constitution or by the replaceable rules, which apply to it, or by both. Section 135 lays down the list of companies to which the replaceable rules apply (Legislation.gov.au 2016). The constitution and replaceable rules lay down provisions for the internal procedures to be followed by a Company. The Constitution and replaceable rules are kind of contract and they bind the members with the Company, the directors and company secretaries with the Company, and they also bind the members with each other. These rules apply to carry out the internal management of the company (Rolfe 2013). Provisions for a class of redeemable preference shares in the Constitution- Sample form The constitution of NEUTRELA Propriety Limited lays down the following provisions with respect to H class redeemable preference shares: The holders of this class of shares shall not be allowed to attend any meeting of the Company. They shall also not be entitled to vote in any meeting of the Company. The Company may return the amount paid up by the holder of redeemable preference shareholders and may redeem all such shares or may redeem part of those shares from time to time. The Company before doing such act shall give a notice, 7 days before, to the last known address of such shareholder, and on the expiry of 7 days of delivery such notice, the shares shall be considered to have been redeemed; The Company shall give priority to this class of shareholders, with respect to returning the amount paid up by the shareholders, in case of winding up of the Company; The H class redeemable preference shareholders are not allowed to participate in the division of excess profits/assets of the Company; This class of shareholders are entitled to such non-cumulative dividend as are deemed fit by the Director and have no right to any cumulative dividend. Justification for incorporation of Section 124 in the Corporation Act, 2001 A company is a separate legal body and it has been endowed with certain powers and capacities under Section 124 of the corporation Act, 2001. (Alrc.gov.au 2016). It may exercise all such powers as is necessary for carrying out its operations. It has a distinct existence of its own and it has full control and access to its properties and assets. It has legal capacity in the sense that all acts done by a Company will be considered to be valid and binding. The acts done by a Company cannot merely be considered to invalid in the sense that the acts were not done in the best interest of the Company. This provision has mainly been incorporated to protect the interest of the third parties dealing with the Company. Third parties dealing with the Company are entitled to full protection, all transactions entered into between the Company and the third parties will be considered valid and binding. Thus, section 124 ensures to build up a legal relationship between a Company and a third party and none of the dealings between a bona fide third party and a Company shall be considered invalid so long as the Company is not acting contrary to any law made by a State or a Territory. Section 124, in a way, has also displaced the doctrine of ultra vires; it gives legal recognition to all acts done by the Company. Justification for incorporation of Section 129 in the Corporation Act, 2001 The Constitution of a Company sets out the rules and procedures, which it has to follow. These are internal procedures, which a company ought to follow in its transactions with an outsider. An outsider, dealing with a company may or may not have the knowledge whether all the internal procedures of the company have been followed or not. If a person enters into a transaction with a Company in good faith and with a bona fide belief that the Company has followed all internal procedures and afterwards it is found that there was irregularity in the internal procedures for which the dealing becomes invalid, then he may suffer a loss or damage with respect to such dealing. Section 129 has therefore been designed to protect the interests of such outsiders who deal with the company with a bona fide intention and has no knowledge of the procedural irregularities of the Company. This rule is also known as the rule of indoor management. This rue was enunciated in the case of Royal British Bank vs. Turquand. In this case, the Company, Turquand had borrowed loan from the Bank in an irregular manner and thereafter failed to repay the loan amount. The Company contended since the loan was approved in an irregular manner, therefore it was not bound to repay the same. The Court rejected such contention. The principle laid down in this case is that an outsider or a third party is entitled to assume that the Company has duly complied with all the internal procedures and consequently all transactions entered into between the company and the third party shall be considered valid and binding (Stannard 2015). The same rule has been incorporated under Section 129 of the corporation Act, 2001. Justification for incorporation of Section 588(M) (3) in the Corporation Act, 2001 The Directors of a Company play a vital role in managing the affairs of the Company. All the valuable assets of the Company are entrusted to the Directors, they are completely aware of financial situation of the Company, and they need to take responsible steps at every stage of the Companys progress (Hussain et al. 2015). During insolvency period of a Company, the Directors are ought to act more carefully and have to take steps by taking into consideration the best interest of the creditors and shareholders. During this period, if a Director knowingly takes credit from a person and such person suffers a loss due to the insolvency of the Company; in that case the Directors cannot be allowed to get away with it (Keay 2015). Therefore, Section 588(M) (3) has been incorporated in the Corporation Act, 2001, which directs the Directors to return the amount lost or suffered by the Creditors who advanced loan during the insolvency period of a Company. This rule has been laid down to give effect to the concept of lifting of corporate veil. A company has a distinct legal personality and all the acts done by a Company are attributed to it. In case of a fraudulent act done by a Company, this veil has to be pierced in order to find out the main culprit (Lam 2015) Section 588(M) (3) demonstrates an instance of the application of this principle and imposes liability on the Directors who, during insolvency of a Company or at a time when the Company is about to get insolvent, knowingly takes loan from a creditor and causes loss to him. References Alrc.gov.au. (2016). Corporations Act 2001 (Cth) | ALRC. Anderson, H., 2014. 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