Company
Company Corporations Companies registered under the Corporations Act
Public companies
Other corporations (eg incorporated associations)
Proprietary companies
Limited by shares
Limited by shares
Unlimited with share capital
Unlimited with share capital
Limited by guarantee No liability
Separate legal personality - a company is a separate legal person – ‘artificial legal person’ - company can incur obligations and hold rights, and sue and be sued, in its own name - companies are separate from their controllers: - Salomon v Salomon (p47) & Lee v Lee’s Air Farming Ltd (p49) Proprietary companies -s113: No more than 50 non-employee shareholders No fundraising activity requiring a disclosure document under Ch 6D Must have one or more directors – s201A - s112: may be a company limited by shares or an unlimited company with share capital Public companies - s112: everything other than proprietary companies - s201A(2): Must have 3 or more directors - sometimes have different rules with proprietary, which give shareholders greater protection Corporate groups - Often different aspects of the business are owned or carried out by different companies in group - s46: Holding companies and subsidiaries & s50: related bodies corporate
- s50AA: controlled entities – ‘an entity controls a second entity if the first entity has the capacity to determine the outcome of decision about the second entity’s financial and operating policies.’ Internal Governance of the company - s134: internal governance rules can be consisted of The company’s own constitution (s136), or - Constitution can be adopted when the company is registered or later: s136(1) - Amending constitution requires special resolution of members: s136(2) - Constitution can contain extra requirements for changing its rules: s136(3) The replaceable rules (listed in s141), or - Replaceable rules can be displaced or modified by a constitution: s135(2) A combination of the two - s140: a company’s constitution and the RRs that apply to it have effect as a contract between: a) b) c)
The company and each member The company and each director and secretary A member and each other member IT ONLY APPLIES if the person is a e.g. Member, and only in their CAPACITY as a member Eley v Positive Govt Security life (p110)
- Breach of internal governance rule:
Breach of contract, use contract law Oppression s232-s234 Procedural irregularity Not a breach of Act – s135(3)
Single director/shareholder companies - only allowed for proprietary companies - RR do not apply – s135(1) - Some special rules apply – s198E, 201F and 202C
Member Topic 1: Decision-Making Power - CA and Internal governance rules (RR or constitution) may give members in general meeting certain decision making power - Under CA, member approval (special resolution) is required to (p421): S136(2): adopt, modify or repeal the constitution. E.g. the issue share requires changing the constitution, altering a restriction in the constitution to allow the addition share issue S246B(2): variation of class rights when constitution doesn’t set out procedure S208: public company, approval for related party transaction S256C: (1) ordinary resolution for equal reduction, (2) special resolution for selective reduction S260B: special resolution to approve financial assistance or a resolution agreed by all ordinary shareholders at a GM S157: change the company’s name S162: change type - Members cannot interfere with power of board (Cunninghame p133; John Shaw&Son p133) - Members can take the following option if they don’t disagree with the board: Vote out the board (ordinary resolution, RR s203C for pty ltd, Law s203D for ltd) Sell share Change s198A or other rules (special resolution) Voting and Removing directors - Voting: Company may appoint directors by passing an ordinary resolution, RR s201G; listed companies always have director election according to law
Members must approve appointments made under casual vacancy power: RR s201H (director can appoint other directors)
Topic 2: Member Meetings - s250N: all public co must hold AGM - rules governing meetings are set out in CA and the internal management rules Member Calling Meetings - s249D: requisition by 5%+ or 100+ members, company liable for the expense directors don’t need to convene if it’s for improper purpose (Case for meetings are for proper purpose only: NRMA v Parker p161)
- s249F: directly call for a meeting by 5%+ members, members liable for the expense - s249E: if a meeting requisition is not called by the directors then the directors are liable for the meeting expense - s249G: by court on application by director or member if otherwise impracticable Member s ’ Meeti ng Ag enda - Only matters included in the notice of meeting can be considered in the meeting, this allows member to decide thing such as whether to appoint a proxy or not - s250R states matters in AGM that doesn’t need to be on AGM: Financial reports and Election of directors - s249N: members with 5%+ of the vote or 100+ members can request the inclusion of resolutions to be put to the members at next meeting (another way for members to raise an issue without calling a separate meeting, but these items must be decisio n that are within member’s capacity , aka P ro per purpose) - s249O & s249P: company must send out notice of member resolutions, statements Required Meeting Procedures - Giving notice of the meeting: s249Q: meetings are only for PROPER PUPOSE, motives are irrelevant (NRMA v Scandrett) s249H: minimum 21 days, but can have consent for shorter notice period or constitution may provide for a longer period. - s249H(3): shorter notice is not allowed for PTY removing director under s203D s249J: physical notice must be given to members, directors individually. s249L(1)(c): must content the special resolution that is going to be proposed. s249HA: PUBLIC company, minimum 28 days Must ‘fully and fairly inform and instruct the S/H about the matter on which he or she will have to vote’ (Devereaux Holdings) s249(L)(3): wording need to balance the information presented, accessible and not misleading Conduct of meetings - RR s249T: quorum: at least 2 members (possible for one person meeting, if a class of share only has one member) - s249S: use of technology - s249X: proxies and corporate representations (RR FOR PTY LTD ONLY) - RR s249U: directors can elect the chair of the members’ meeting (e.g. when you are in deadlock, chair has casting vote RR s250E(3)
Voting - RR s250E: one vote/share for members - Preference shareholders’ right to vote depends on their defined class rights, they don’t have control right to vote for change of directors and constitution, unless CA gives them right to vote (i.e. s246C(6) – variation of preference share) - s249Y: voting by proxies - s250J & s250K: voting by show of hands and poll Poll takes into account your % of holding interest Show of hands only consider by hands (not consider % share), this is a cheap and quick way Member can immediately demand a poll after show of hands Decision-making without a meeting - s249B: for a single member company, resolution is passed by the member recording and signing it - s249A: Proprietary companies may use ‘circulation resolution (‘flying minute’), where all members entitled to vote must sign an agreement to resolution: 100% resolution Members complain for Procedural Irregularities in Meetings– s1322 (p174) - s1322: outcome of meeting may be valid (automatic validation) despite some ‘procedural irregularity’ (defined by s1322(1)(b): it includes a) absence of quorum or b) a defect, irregularity or deficiency of notice or time) unless court invalids it due to it has caused substantial injustice that cannot be remedied s1322(2). {can be applied to both director and members’ meeting} - Depending on the situation, if it’s unanimously voting then it’s unlikely for court to invalid the outcome. Or if you own 5% share and didn’t get notice, court won’t invalid, as 95% members vote to pass special resolution. But if you own 20% share, then you may ask court to invalid outcome, as you can argue that if you show up in the meeting, there’s high chance of you are able to get 25% vote to block resolution. - s1322(6): court can valid an ‘invalid’ act, matter, thing or proceeding if:
it’s procedural in nature the person acted honestly it’s just and equitable to make the order no substantial injustice onus on the person asserting validity Weinstock v Beck (p176)
Public companies
Other corporations (eg incorporated associations)
Proprietary companies
Limited by shares
Limited by shares
Unlimited with share capital
Unlimited with share capital
Limited by guarantee No liability
Separate legal personality - a company is a separate legal person – ‘artificial legal person’ - company can incur obligations and hold rights, and sue and be sued, in its own name - companies are separate from their controllers: - Salomon v Salomon (p47) & Lee v Lee’s Air Farming Ltd (p49) Proprietary companies -s113: No more than 50 non-employee shareholders No fundraising activity requiring a disclosure document under Ch 6D Must have one or more directors – s201A - s112: may be a company limited by shares or an unlimited company with share capital Public companies - s112: everything other than proprietary companies - s201A(2): Must have 3 or more directors - sometimes have different rules with proprietary, which give shareholders greater protection Corporate groups - Often different aspects of the business are owned or carried out by different companies in group - s46: Holding companies and subsidiaries & s50: related bodies corporate
- s50AA: controlled entities – ‘an entity controls a second entity if the first entity has the capacity to determine the outcome of decision about the second entity’s financial and operating policies.’ Internal Governance of the company - s134: internal governance rules can be consisted of The company’s own constitution (s136), or - Constitution can be adopted when the company is registered or later: s136(1) - Amending constitution requires special resolution of members: s136(2) - Constitution can contain extra requirements for changing its rules: s136(3) The replaceable rules (listed in s141), or - Replaceable rules can be displaced or modified by a constitution: s135(2) A combination of the two - s140: a company’s constitution and the RRs that apply to it have effect as a contract between: a) b) c)
The company and each member The company and each director and secretary A member and each other member IT ONLY APPLIES if the person is a e.g. Member, and only in their CAPACITY as a member Eley v Positive Govt Security life (p110)
- Breach of internal governance rule:
Breach of contract, use contract law Oppression s232-s234 Procedural irregularity Not a breach of Act – s135(3)
Single director/shareholder companies - only allowed for proprietary companies - RR do not apply – s135(1) - Some special rules apply – s198E, 201F and 202C
Member Topic 1: Decision-Making Power - CA and Internal governance rules (RR or constitution) may give members in general meeting certain decision making power - Under CA, member approval (special resolution) is required to (p421): S136(2): adopt, modify or repeal the constitution. E.g. the issue share requires changing the constitution, altering a restriction in the constitution to allow the addition share issue S246B(2): variation of class rights when constitution doesn’t set out procedure S208: public company, approval for related party transaction S256C: (1) ordinary resolution for equal reduction, (2) special resolution for selective reduction S260B: special resolution to approve financial assistance or a resolution agreed by all ordinary shareholders at a GM S157: change the company’s name S162: change type - Members cannot interfere with power of board (Cunninghame p133; John Shaw&Son p133) - Members can take the following option if they don’t disagree with the board: Vote out the board (ordinary resolution, RR s203C for pty ltd, Law s203D for ltd) Sell share Change s198A or other rules (special resolution) Voting and Removing directors - Voting: Company may appoint directors by passing an ordinary resolution, RR s201G; listed companies always have director election according to law
Members must approve appointments made under casual vacancy power: RR s201H (director can appoint other directors)
Topic 2: Member Meetings - s250N: all public co must hold AGM - rules governing meetings are set out in CA and the internal management rules Member Calling Meetings - s249D: requisition by 5%+ or 100+ members, company liable for the expense directors don’t need to convene if it’s for improper purpose (Case for meetings are for proper purpose only: NRMA v Parker p161)
- s249F: directly call for a meeting by 5%+ members, members liable for the expense - s249E: if a meeting requisition is not called by the directors then the directors are liable for the meeting expense - s249G: by court on application by director or member if otherwise impracticable Member s ’ Meeti ng Ag enda - Only matters included in the notice of meeting can be considered in the meeting, this allows member to decide thing such as whether to appoint a proxy or not - s250R states matters in AGM that doesn’t need to be on AGM: Financial reports and Election of directors - s249N: members with 5%+ of the vote or 100+ members can request the inclusion of resolutions to be put to the members at next meeting (another way for members to raise an issue without calling a separate meeting, but these items must be decisio n that are within member’s capacity , aka P ro per purpose) - s249O & s249P: company must send out notice of member resolutions, statements Required Meeting Procedures - Giving notice of the meeting: s249Q: meetings are only for PROPER PUPOSE, motives are irrelevant (NRMA v Scandrett) s249H: minimum 21 days, but can have consent for shorter notice period or constitution may provide for a longer period. - s249H(3): shorter notice is not allowed for PTY removing director under s203D s249J: physical notice must be given to members, directors individually. s249L(1)(c): must content the special resolution that is going to be proposed. s249HA: PUBLIC company, minimum 28 days Must ‘fully and fairly inform and instruct the S/H about the matter on which he or she will have to vote’ (Devereaux Holdings) s249(L)(3): wording need to balance the information presented, accessible and not misleading Conduct of meetings - RR s249T: quorum: at least 2 members (possible for one person meeting, if a class of share only has one member) - s249S: use of technology - s249X: proxies and corporate representations (RR FOR PTY LTD ONLY) - RR s249U: directors can elect the chair of the members’ meeting (e.g. when you are in deadlock, chair has casting vote RR s250E(3)
Voting - RR s250E: one vote/share for members - Preference shareholders’ right to vote depends on their defined class rights, they don’t have control right to vote for change of directors and constitution, unless CA gives them right to vote (i.e. s246C(6) – variation of preference share) - s249Y: voting by proxies - s250J & s250K: voting by show of hands and poll Poll takes into account your % of holding interest Show of hands only consider by hands (not consider % share), this is a cheap and quick way Member can immediately demand a poll after show of hands Decision-making without a meeting - s249B: for a single member company, resolution is passed by the member recording and signing it - s249A: Proprietary companies may use ‘circulation resolution (‘flying minute’), where all members entitled to vote must sign an agreement to resolution: 100% resolution Members complain for Procedural Irregularities in Meetings– s1322 (p174) - s1322: outcome of meeting may be valid (automatic validation) despite some ‘procedural irregularity’ (defined by s1322(1)(b): it includes a) absence of quorum or b) a defect, irregularity or deficiency of notice or time) unless court invalids it due to it has caused substantial injustice that cannot be remedied s1322(2). {can be applied to both director and members’ meeting} - Depending on the situation, if it’s unanimously voting then it’s unlikely for court to invalid the outcome. Or if you own 5% share and didn’t get notice, court won’t invalid, as 95% members vote to pass special resolution. But if you own 20% share, then you may ask court to invalid outcome, as you can argue that if you show up in the meeting, there’s high chance of you are able to get 25% vote to block resolution. - s1322(6): court can valid an ‘invalid’ act, matter, thing or proceeding if:
it’s procedural in nature the person acted honestly it’s just and equitable to make the order no substantial injustice onus on the person asserting validity Weinstock v Beck (p176)
