Steps To Incorporate And Register A Company In Australia And Liability Of A Company For Employee Injuries

Process of Registering a Company in Australia

Question 1 

Richard has an extensive olive grove in the Hunter Valley region of NSW. He has around 12,000 trees established and has recently purchased his neighbour’s adjoining property with a view to expansion.

His business is flourishing and his two sons, David and Liam, have recently moved from Sydney to help him expand the business. They see opportunities opening up in new markets and would like to become further involved in the business. They want the family business to be in a form that would allow it to expand as necessary and also make it easier to raise the capital required for this expansion. They have also heard that there are tax benefits in operating abusiness through a company structure rather than as a sole trader or partnership. They persuade their father to take advice on turning the family business into a family-run company. There is some contention regarding the naming of the company. Richard prefers to name the company after themselves – “Ridali” – whereas David and Liam prefer the name “Rich’s Guaranteed Olives”, in honour of their father.

Advise Richard and his sons of the steps that need to be taken to incorporate and register a company.

Question 2

Terry was an employee of Cosmo Mining Services Pty Ltd (CMS). CMS is a subsidiary of Cosmo Mine Ltd (CM) as CM owns 120 of the 200 issued shares in CMS. CMS owns and operates a lead, zinc and copper mine at Gunbarrel, Western Queensland. CM has an arrangement with the New Vision Bank Ltd whereby it leases all of the mining equipment and then subleases the equipment to CMS which pays CM a leasing charge per annum equal to the bank’s leasing costs plus 10 per cent.

Recently, CMS has attracted considerable media attention as scientists have discovered thatCMS’s mining activities have contaminated a nearby river which supplies the water to the mine and Gunbarrel. A number of Gunbarrel residents and former employees, including Terry, have contracted cancer because they drank the contaminated water. The CMS shareholders call a general meeting for the purpose of addressing CMS’s potential liability to its employees (current and former) as well as the residents of Gunbarrel. The CMS shareholders unanimously vote in favour of selling CMS’s business to a newly formed company, Lazarus Pty Ltd, and winding up of CMS. Advise Terry if he can take action against Lazarus Pty Ltd, CMS and/or CM.

To furnish advice to Richard and his sons on the steps that needs to be taken to incorporate and register a company?

Company is a business form which is normally pursued by the people who wants to continue their business in a form so that an artificial legal personality is attained by their business. Once a company is formed then it is not a natural person but is considered as an artificial person in the sense that it has all the powers and status of a normal human being but does not have a body and soul of its own and is held in Salomon v A Salomon and Co Ltd [1897]. Thus, it requires officers for its working. But, once a company is formulated by following the process of registration, then, it has the status of a person who has the capacity to purchase property, to sue and be sued, to pay taxes, to raise capital and is held in Macaura v Northern Assurance Co Ltd [1925]. A company has unlimited life span and never dies. Also, a company liability is limited in nature, that is, the members of the company are only obligated to pay to the extent of their unpaid share capital and nothing is imposed on the personal assets of the members. (Bourne 2016)

But, it is now very important to understand the procedure that needs to be followed in order to register a company in Australia.

ASIC and the Corporation Act 2001 has laid down the adequate procedure that must be followed in order to register a company. (Tomasic et. Al 2002)

1. Every person who wants to form a company must first select the type of company  that must be formulated, that is, a company limited by shares, unlimited ompany, company by guarantee, public company, special purpose company, etc.
2. Under section 119 of the Act, when the company is decided then the name of the company must be decided. The name of the company must be very distinct and must not match with any other name of the company. If the name is offensive, illegal, misleading or results in deception on the public then such name are also not allowed. Also, if the name of the company is including Royal, Bank, Incorporated, etc then it is required that the government permission is needed;

• The management of the company must be decided, that is, the company can be run by constitution or replaceable rules or both by the replaceable rules and the constitution;

1. The share capital of the company is also decided that is whether the shares of the company must be limited or unlimited in nature;
2. Officers of the company must also be appointed by taking consent of the officers. Every private company must have a company secretary, director and at least one member;
3. A company must have a registered office. If the registered office is not the asset of the company then the permission of the owner of the property must be taken before opening the registered office at such property.  

• When all the requirements are met then Form 201 must be filed with ASIC along with the requisite fees. When the fees is submitted then the company is registered;
• When the company is registered then a certificate is provided along with ACN number and a corporate Key;

1. When a company is registered then it is necessary that the company must provide ACN number on all the company documents.

In New South Wales, Hunter Valley region, Richard is dealing in olive groves with 12,000 trees. He is expanding his business and thus his two sons, Liam and David are intending to involve in the business in order to help him. Since all the three, that is, Liam, David and Richard are wishing to expand their business and wants to operate as a company, thus, the due process of registration must be followed which will register their company and they will acquire the status of a separate legal entity.

Now, Ridali is the right name that can be kept for the company as it is not similar with any already exiting name. Also, it does not contain the words royal, bank, incorporated, so there is no need of any kind of government approval. But the name Rich’s Guaranteed Olives is not a perfect name as it gives an impression that the company is dealing in olives of the quality that very rich and this supply of rich olives is guaranteed which is not true. Thus, Ridali is the appropriate name and not Rich’s Guaranteed Olives.

Choosing a Company Name

Conclusion 

The right name for the business of Richard is Ridali and they can formulate a company by following the process of registration.

Against whom the action can be initiated by Terry for the injuries that are suffered by him, either, Lazarus Pty Ltd, CMS and/or CM?

When a company is formulated, then, it is not a natural person but is considered as an artificial person in the sense that it has all the powers and status of a normal human being but does not have a body and soul of its own and is held in Salomon v A Salomon and Co Ltd [1897]. Thus, it requires officers for its working. But, the acts of the company that are carried on by the officers  of the company are the acts which are imposed on the company itself and are not the acts of the officers. The officers by acting as an agent of the company undertakes the actions on behalf of the company and such acts will make the company binding and the company must honor the acts that are undertaken by such officers. (Bourne 2016)

Normally, whenever a company is undertaking any actions then it must make sure that it has a duty to provide protection to its employees against the harm that might cause to them because of their acts or omissions. In Donoghue v Stevenson (1932), the house of Lords has submitted that there is duty of care on the company to make sure that no harm must be caused to its employees because of their acts and omissions and is held in Briggs v James Hardie & Co Pty Ltd (1989). But, the duty of care is only imposed when the employee is in proximate relationship and is also reasonably foreseeable by the company; then there must be breach of duty, that is, the standard of care is not cater by the company like a reasonable prudent man does in the like situations; it is necessary that when the duty is violated then there is some loss caused to the employee. The loss must be not remote and must be caused because of the acts of the company. (Duncan 2012)

But, there are situations, when the veil that makes a distinction amid the officers with that of the company itself is pierced. In such cases, it is found that the acts that are taken by the officers of the company are not considered as the acts of the company, but, such acts are considered to be the acts of the officers themselves and veil is pierced making the officers liable for such acts personally and is rightly established in Repatriation Commission v Harrison (1997). (Cassidy 2006)

Liability of a Company for Employee Injuries

The situation is also very important when there is presence of two companies, that is, a parent company and a subsidiary company. When the parent company is taking all the activities of the subsidiary then it is an agent of the subsidiary and the court are willing to pierce the veil when the subsidiary company is not able to pay its debts and is held in Smith Stone & Knight Ltd [1939]. Also, when the formation of the new company is mainly due to incur fraud on the aggrieved then the veil of the company is pierced by the courts and is held in Spreag v Paeson Pty Ltd (1990) and Re Darby [1911].

Also, if the plaintiff wants to bring an action against the company for the loss so caused then the plaintiff can do so under section 236-237 of the Corporation Act 2001 provided the company is not taking the action on behalf of the plaintiff and the act by plaintiff is carried by taking in consideration the interest of the company.  

There are tow companies, Cosmo Mining Services Pty Ltd (CMS) and Cosmo Mine Ltd (CM). CM is the parent company of CMS. Out of 200 shares of CMS, CM was holding 120 (60%) shares in CMS. CMS has several employees in its firm and one of which is Terry. CMS is involved in activities that are related to mining and because of the process of mining the river was polluted. The water of the river was supplied to Gunbarrel and mine. Terry was the resident of Gunbarrel. The polluted water is sued by Terry and because of its usage Cancer is caused to Terry.

Now, CMS can be held liable for the injury that is caused to Terry provided CMS is negligent in its actions.

It is submitted that since CMS is involved in the mining activities and baecsue of mining activities the water is contaminated, thus, it is the duty of CMS that adequate actions must be taken by CMS so that no loss is caused to any person because of the acts of CMS. The duty of care is imposed upon CMS because CMS and Terry are in the relationship of proximity because CMS is aware that the contaminated water is used in Gunbarrel and the water is also used by the residents including Terry. Thus, Terry and CMS are neighbors. Also, the residents of Gunbarrel are reasonably foreseeable by CMS. Thus, there is duty of care imposed upon CMS against the residents of Gunbarrel including Terry.

Circumstances where the Veil between a Company and its Officers may be Pierced

This duty of care is violated by CMS as CMS is aware that because of its mining activities the river water is polluted and which is used by the residents of Gunbarrel. No reasonable actions are taken by CMS to avoid the risk that is caused because of the contaminated water. Thus, there is clear breach on the part of CMS.

Because of the breach of CMS, Terry has suffered cancer. The loss that is caused to Terry is because of the use of polluted water and thus there is causation. Also, the loss is reasonable foreseeable by CMS.

Thus, there is duty of care which is breached and because of breach loss is caused to Terry. So, CMS is negligent in its actions and thus must pay the loss that is caused to Terry.

But, CMS shareholders decided to dissolve the company and to form a new company called Lazarus Pty Ltd in order to avoid the liabilities (including the loss that is caused to Terry). Thus, the main aim of forming Lazarus Pty Ltd is not under any good and honest intention by CMS. But, the main intention of dissolving CMS and to form Lazarus Pty Ltd is incurring fraud upon Terry. This is clear an act of façade and sham on the part of CMS when Lazarus Pty Ltd is formed. So, by applying Repatriation Commission v Harrison (1997) the veil amid Lazarus Pty Ltd and CMS is pierced and thus Terry can sue Lazarus Pty Ltd for the recovery of his loss.

Also, CM is the holding company of CMS. But, CM is not only the holding company but is also acting as an agent of CMS. This is because CMS is mainly operating in copper, Zinc and lead at Gunbarrel. However, it is CM who is entering into contract with New Visions Bank Ltd and takes the mining equipment on lease and then sub lease the same to CMS. Thus, CM is acting for CMS. Thus, by applying Repatriation Commission v Harrison (1997) the veil amid CMS and CM must be pierced and the liabilities of CMS must be imposed on CM.

So, Terry can sue CM since CMS is not able to pay the liabilities as the same is dissolved.  

Conclusion 

Thus, Terry can sue CMS and not Lazarus Pty Ltd as the incorporation of Lazarus Pty Ltd is an act of sham. But, since CMS is dissolved thus, Terry can sue CM for the losses incurred by him. Terry cam also initiate action under section 236-237 of CM does not initiate the action on its own.

Reference List

Books/Articles/Journals

 Bourne, N. (2016) Bourne on Company Law. Routledge. Business & Economics.

Cassidy, J. (2006) Concise Corporations Law. Federation Press.,

Duncan, W. (2012) Joint Ventures Law in Australia: 3rd Edition, Federation Press.

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

 Case Laws

Briggs v James Hardie & Co Pty Ltd (1989).

Donoghue v Stevenson (1932),

Macaura v Northern Assurance Co Ltd [1925] AC 619.

Repatriation Commission v Harrison (1997).

Re Darby [1911];

Smith Stone & Knight Ltd [1939], and Briggs (1989);

Spreag v Paeson Pty Ltd (1990)

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