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Characteristics of a registered company

Question:

Discuss About The Company Law In The Commonwealth Caribbean?

A company once incorporated is an artificial person in law. When any company is formed in Australia, then, it gains the status of an artificial legal person who is a separate legal person in law and is construed as separate from its officers and owners. This characteristic of operations legal entity is analyzed in Salomon v A Salomon and Co Ltd [1897]. (Rambarran Mangal, 1995)

Once a company is registered then there are various characteristics that are associated with it. Some of the characteristics are that it has its own separate personality, that is, the acts of the company are carried out in its own name and the directors and shareholders are not accountable for the same. Apart from the abive, some of the other characteristics of a registered company are; (Tomasic et al, 2002)

  1. The liability of the company is limited unless the company is an unlimited liability company (Lee v Lee's Air Farming Ltd[1960]);
  2. There are various tax advantages;
  1. It is easy to raise capital.
  2. The shares of the company can be transferred easily.

But, how to gain this separate lawful position?

In order to convert a business in the form of a company there are few statutory guidelines that needs to be comply with. The same are submitted herein below: (ASIC, 2017)

  1. The types of the company - The first step is to select the kind of company that a person intends to operate. There are various kinds of companies that can be operated in Australia. The same are: (James, 2008)
  2. Limited liability company – The liability of the owner/shareholders is only up to the value of the shares hold by them;
  3. Unlimited liability companies are those where the liability is not limited;
  4. Companies limited by guarantee;
  5. For mining and resource companies, the no liability companies are registered;
  6. Public companies

Apart from above, some of the other kinds of companies that can also be registered are Special purpose companies; not for profit companies; Limited liability companies.

  1. The company name – It is then important that a company name must be selected. It is very important to select the company name which is not same with any oher names of the companies. However, even if the name is identical but in some cases the name is still registrable if:
  2. Where the name is holed by an individual and he is the proposed member or director of the company;
  3. Where the name holder is a company and the such company is the proposed member
  4. When the holder of the name is partnership or joint venture and every partner is the proposed member or director.

Further if the name of the company includes words such as Bank, royal, trust, incorporated, then it is necessary that the prior approval of the government must be sought. But, if any name would mislead people regarding the company activities or includes words that resemble its association with the government of Australia, any Royal family or any ex-servicemen's organizations, then such names are prohibited. Any names which are illegal or offensive are also prohibited.

Management of the company – The next step is to decide as how the management of the company will be carried out. There are three options:

  1. By replaceable rules – There is no requirement of written constitution if the company decides to operate by way of rules.
  2. By constitution – a company can form a written document wherein the rules are written in a formal document.
  3. By both – A company can comply with its internal governance with the help of both the replaceable rules and the constitution.
  4. Share details – every proprietary company is require to have minimum fifty non-employees shareholders. Now, a proprietary company can be operated in two manners:
  5. Limited by shares – when the obligation of the shareholders is only up to their share value.
  6. Unlimited company with share capital – the liability of the shareholders is unlimited in nature.
  7. Obligations as an officeholder – Every officeholder must analyze his obligations which includes, that the details of the company must be kept up to date, that the records must be maintained, fees must be paid,
  8. Obtain various consents – Written consents are required from the directors, secretary and the members prior appointing them at their respective positions. A director and secretary must be 18 years of age and it is compulsory that one secretary or director must ordinary resides in Australia. also, every member must have at least one member.
  9. Selection of registered office – there is a need of a office by every company. If the office is not possessed/owned by the company then it is necessary that written permission is required from the owner of the property where the registered office of the company is situated.
  10. Application with ASIC and application fee – Form 201 must be submitted with ASIC along with fees for the incorporation of the company.
  1. ACN number is acquired by the company;
  2. The company registration certificate is received.
  3. Corporate key is received.
  4. Ongoing requirements – Once a company is registered it is necessary to make sure
  1. the name of the company is displayed wherein the business is conducted and is open to public;
  2. the ACN is displayed on all company documents;
  3. The details of the company are always up to date.

It is thus submitted that Richard and his son’s must follow the steps that are specified above in order to register their company and upon registration they can avail the benefits that are attributed to a registered company.

Now, the name RIDALI can be kept by Richard and his son’s as the name is not similar with any other company nor its is illegal, offensive or is prohibited. However, the name ‘RICHS GURANTEE OLIVES” gives a misconception regarding the guarantee of olives and thus can be misleading.

Guidelines for registration

A company once incorporated is an artificial person in law. A business legal entity signifies that the company is distinctive in the eyes of law and cannot be associated with its directors and officers. A company is unique and the acts that are pursued by the officers/directors/employees are on behalf of the company. (Rambarran Mangal, 1995)

But there are situations wherein the tasks that are undertaken by the officers/directors/employees are construed to be their own and not carried on behalf of the company. This phenomenon is called piercing the corporate veil of the company. Normally, in case of subsidiary company, the acts of the subsidiary are considered to be the acts of the holding company provided there are any of the three situations: (Ramsay & Noakes, 2001),

If the subsidiary company is involved in the action of a tortuous liability – In CSR Ltd v Wren (1997) 44 NSWLR 463, the CSR Ltd was the parent company of APL and CSR was held liable for the negligent actions of the APL because APL failed to make the workplace safe resulting in suffering of one of the employees of APL with asbestos-caused mesothelioma. It was held that CSR is liable for the acts of the APL as there is proximity amid CSR and APL and CSR can reasonability foresee the damages that is incurred by the employee of APL. In CSR v Young, (1998), the court held that the parent company has a duty of care towards its subsidiaries employees children. CSR failed to take proper precaution while distributing and manufacturing asbestos resulting in loss to the children of the employee of its subsidiary and was thus held negligent.

When the subsidiary is construed to be the holding company’s implied agent– In Stone and Knight v Birmingham Corporation (1939), the subsidiary of the plaintiff carry out the business of the plaintiff holding company. The plaintiff beneficially holds the subsidiary and run the day to day activities of the subsidiaries. The profits of the subsidiary are held by the holding company. The court held that considering the situation, the subsidiary is nothing but is an implied agent of the holding and the work of the subsidiary must be honored by the holding company.

When the creation of the subsidiary is to hide the true intention and is an act of sham or façade – In Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988), it was held that when the subsidiary is created by the parent company in order to incur sham then it the veil of the holding and subsidiary is pierced and they are regarded as one.

Kinds of companies

When the group is created so as to conceal the actual intention of the organizer then it is an action of facade and it was held by the courts that the veil of such corporate groups must be pierced in order to bring justice. When the establishment of the company is nothing but an act of fraud then the veil is pierced (Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988). But in Peate v Federal Commissioner of Taxation (1964), it was held that of the company is incorporated properly by complying with all statutory compliances then the incorporation of the company cannot be regarded as an act of sham.

Further, an aggrieved employee can take Statutory derivative action (SDA) action against the holding company if the company itself is not taking any action alginate its own wrong.  As per section 236 of the corporation Act 2001, any member or officer of former officer or member of the company (as per section 82 A of the Act, an employee is considered as an officer), can make an application for SDA under section 237 if it can satisfy the court that the company will not take any action against the wrong so committed and the applicant is acting honestly and the application must be approved in the company’s best interest and is a serious matter to be tried (Westgold Resources NL v Precious Metals Australia Ltd [2002]).  Once SDA is undertaken then if the court thinks appropriate then the company at default can be would up. (Melissa Hofmann, 2005)

Conclusion

It is submitted that Terry is the employee of CMS and CMS is the subsidiary of CM. loss is caused to Terry because of the actions of CMS. It is submitted that all the equipments and actions of CMS is controlled by CM. thus, CMS is acting as an implied agent of CM. thus, the acts of CMS will fall upon CM (Stone and Knight v Birmingham Corporation (1939). Also, CM will ne held liable for the negligent actions of CMS (CSR v Young, (1998). So, Terry can sue CM for the negligent actions of CMS.

Also, Terry can sue Lazarus Pty Ltd as this company is formulated by CMS in order to protect from the liabilities that might arose because its negligent actions. Thus, the creation of Lazarus Pty Ltd is to incur fraud or sham (Sharrment Pty Ltd).

Further, since CMS has indulged in a wrongful action and there are chances that it will not bring any action against its own wring. Thus, Terry being the employee and officer of the company is authorized to bring SDA action against CMA under section 236 and ection237 of the Act. if the acts of CMS were found to be in compliance with section 237 of the Act, then, CMS can be wound up,

Reference list

Melissa Hofmann (2005) The Statutory Derivative Action in Australia: An Empirical Review of its Use and Effectiveness in Australia in Comparison to the United States, Canada and Singapore. Bond University.

Rambarran Mangal, (1995) An Introduction to business Law in the Commonwealth Caribbean, Canoe Press, University of the West Indies.

Ramsay & Noakes (2001) Piercing the Corporate Veil in Australia. 19 Company and Securities Law Journal 250-271

Tomasic et al. (2002) Corporations Law in Australia, Federation Press.

CSR Ltd v Wren (1997) 44 NSWLR 463.

CSR v Young, (1998).

Dennis Willcox Pty Ltd v Federal Commissioner of Taxation law (1988) 79 ALR 267.

Lee v Lee's Air Farming Ltd [1960] UKPC 33

Salomon v A Salomon and Co Ltd [1897] AC 22.

Peate v Federal Commissioner of Taxation (1964) 111 CLR 443.

Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530.

Stone and Knight v Birmingham Corporation (1939).

Westgold Resources NL v Precious Metals Australia Ltd [2002] WASC 221.

 ASIC (2017) Steps to register a company (Online). Available at: https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/. Accessed on 5th October 2017.

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