BA-Final Notes

Class 1:
Introduction to the Corporation and Incorporating under
Australian law
The first class introduces the subject matter of Business Associations 1 the
study of the regulation of corporations. We identify the kinds of corporations
that may be incorporated under the Corporations Act 2001(Cth), the processes of
registration, and we consider the principal features and characteristics of a
corporation.
Reading:

Redmond [2.05]-[2.105] for a digested history of the how the regulation

of corporate enterprise has evolved; and
[3.10]-[3-140] for the reasons why business people would
choose a corporation as the legal form for operating a business, and how
incorporation is effected.

Corporations Act 2001 (Cth)

For an overview of the main provisions for incorporation

and management of a small company, see the Small Business Guide in Part 1.5
(following s 111J).
ss45A, 112-114 Types of companies.
ss117-121 Procedures for registration.
Forms of Business Association
1) Partnership: Partnership is a form of right to association which is a right
always subject to reasonable restrictions.() Under section 115 of the
Corporations Act, requires a partnership to:
a) has an object to gain for itself or for any of its members
b) has a membership of more than 20 persons
However section 115 contains a proviso that permits partnerships or
associations of more than 20 persons if it is a profession or calling of a
specialised nature that have restricted practice in incorporated form. Thus,
reg 2A.1.01 specifies an upper limit for particular partnerships such as:
a) medical practitioners-50 members
b) legal practitioners-400 members
c) accountants-1,000 members
Apart from partnerships associatiosn cover non-profit organisations such as
chartiable associations, associations for educational and scientific activities,
sporting, social and cultural associations and associations for professional or
trade activities. These associations are generally unincorporated because
there are no provisions for their specific incorporation under the Corporations

Act. These associations are generally formed to carry out the purpose of a
private business activity and to minimise tax impositions. They also act as a
legitimate means of collecting public funds for a specific purpose within the
corporate sector.
Specialised Indigenous associations are also permitted to be incorporated The
Corporations (Aboriginal and Torres Strait Islander ) Act 2006. The need for
such specialised bodies became even more important after the Native Title
Act 1993 provided that once a native title was determined in the favour of the
indigenous groups then a body corporate be formed to hold and manage the
native title and fulfill the function of the Native Title Act. The body corporates
instituted as per the mandate of the Native Title Act were the land councils at
the federal level, in each state and territory of Australia to oversee that the
royalties paid by miners, pastoralists, rent for leases, compensation and other
payments are deposited in a bank account called the Land Use Trust Account
and are accordingly distributed to the beneficiaries (traditional land holders).
Due to the specialised needs of the aboriginal people, the 2006 Act has
permitted Indigenous people to design their own corporate structures and
rules.
As per the 2006 Act, only majority of the directors and directors must be
indigenous. This is because a number of services offered by the indigenous
associations are also utilised by non-indigenous members and by requiring
only indigenous members to be members and directors might disadvantage
the non-indigenous groups.
The Act is aligned with the Corporations Act but differs on the powers of the
Registrar. The Registrar has additional scope in using his powers to regulate
the Aboriginal and Torres Strait Islander corporations. The registrar has been
given the power of examination that extends beyond financial management
to support dispute resolution and improved organisational effectiveness.
2) Sole trader/Sole proprietorship: A sole proprietorship is not a corporation as
required under the Corporations Act 2001. A person opts for a sole
proprietorship if his business is small and capital investment is minimal. In a
sole proprietorship the sole trader is not a separate legal entity distinct
from the proprietorship. Rather they are one and the same thing. This
makes the sole trader jointly and severally liable to third parties on behalf
of the proprietorship. The sole trader is responsible for the management,
finance and operation of the business. There are no formalities regarding
the formation, conduct, transfer and termination of the business. However,
the Australian Tax legislations impose obligations on the sole proprietorship
and the proprietorship must have a business name, an Australian Business
number and must pay return on income tax and tax on goods and services.
Obligations under specific legislations such as workers compensation,
insurance, government licensing applies to sole proprietorship and to
corporations.
Many times the sole proprietor may choose to conduct business through a
corporation to limit their liability. They generally incorporate a private

company under the Corporations Act in which they become the sole
shareholder and director. They may also choose to appoint their family
members as other members to meet the criteria for incorporation (Solomon
v Solomon).
3) Co-operatives: The Corporations Act 2001 offers limited liability for
members and an alternative form of incorporation for the pursuit of
business and for non-profit goals. In Australia, co-operatives were founded
by primary producers of say, poultry, woolens and agricultural produce as a
vehicle for marketing and distribution of their goods. The co-operative form
has also been employed by consumers to pool their buying power for
purposes such as low-cost housing, credit union movement, workerscooperatives and in other such non-profit ventures.
Incorporated Associations
In Australia, initially there was no federal legislation to govern the incorporation
of associations rather the States and from (1986) Northern territory enacted
legislation, applying the Commonwealths three tier scheme for regulation of
corporations. However in 1987, a Senate Committee recommended that the
three tier scheme, which was a formal agreement between the states and the
federal government had outlived its usefulness and that the Commonwealth
should assume responsibility for companies and security law. The reason for
recommending the responsibility for companies to the commonwealth was
because the tier structure has diminished ministerial responsibility and
accountability to the Parliament, and the distribution of functions between the
tiers particularly between the National Companies, Securities Commission had
duplicated.
In 1989, the Hawke Labour Government introduced a comprehensive Corporation
Bill relying on the Commonwealths legislative powers. The Corporation Act 1989
received assent on 14 July 1989 but its enforcement was put on hold by a
challenge in the High Court over the powers of the Commonwealth to legislate
over the incorporation of an association under section 51(xx). The case of New
South Wales v Commonwealth (1990) 169 CLR 482, decided the matter in
negative, where a six judge bench held that the powers conferred on the
Commonwealth pursuant to section 51(xx) were with respect to foreign
corporations, and trading or financial corporations formed within the limits of the
Commonwealth. The power did not extend to making of laws bringing an artificial
entity into existence. The court further declared that the phrase formed within
the limits of the constitution excludes the process of incorporation from within
the limits of the Commonwealth.
Class 2:

Separate legal personality

Each corporation is a separate legal person, bearing its own liabilities.

Incorporators enjoy limited liability. These classes explain these concepts and
their implications, through a detailed study of the important House of Lords
decision in Salomon.
Reading:

Redmond [4-10]-[4-40].

Cases:
Salomon v Salomon & Co Ltd [1897] AC 22 (Extracted in Redmond

[4.30]).
Lee v Lees Air Farming Ltd [1961] AC 12 (Extracted in Redmond
[4.35])

Cheffins, B Company Law: Theory, Structure and Operation (1997) at

496-508 (in Reading Materials at 1:1-7).
Class 3:

Class 3:

Implications of limited liability

We consider the implications of limited liability, through examining a number of

cases in which courts have lifted the corporate veil. Note also the implications
of limited liability in corporate groups.
Reading:
o

Redmond [4.45]-[4.60] (piercing the corporate veil), [4.120] [4.125] (piercing the corporate veil to look to ensure that
shareholders are not directing the co. Co not an agent of the
shareholder. It is an SEL. Independence of directors to run the
affairs of the Coy)

Extract of Spraeg v Paeson Pty Ltd (1990) 94 ALR 679 (in Reading
Materials)

G Haigh, Asbestos House (Scribe 2004) 397-406 (in Reading

Materials)

M Peacock, Killer Company (ABC Books, 2009) Ch 3 (in Reading

Materials)

James Hardie & Co Pty Ltd v Putt [1998] NSWSC 434 (in Reading
Materials)

Corporations Act ss 588G & H and 588V-W. Note: Definition of

insolvency in s 95A; definition of director in s 9.

Class 4:
The Corporate Constitution and Decision Making by the
Board of Directors
We consider the form and role of the company's constitution. We also
consider how directors are appointed and dismissed, as well as their
powers and rights to information.

Reading:

Corporations Act ss 134-141, 198A(1) and (2), 198F, 248A248G, 203A-203F, 290.

Redmond [3.145]-[3.150]; [5.95]-[5.135]; [5.210]-[5.260].

Class 5:

Decision making by the General Meeting

Reading:
Corporations Act Chapter 2G.2 Meetings of Members.
Redmond [6.90]-[6.125] paying particular attention to Fraser v NRMA
Holdings.
Redmond [5.140]-[5.190], paying particular attention to Re Express
Engineering Works, Re Duomatic, Kinsella v Russell Kinsella and Re
Compaction Systems.
Re Marra Developments Ltd (1976) 1 ACLR 470 (Students to download
from LexisNexis AU)

Class 6:

Contracts with outsiders

How do corporations effectively contract with outsiders? When can

outsiders trust transactions purportedly made on behalf of a
corporation?
Reading:

Corporations Act ss 124-130.

Redmond [5.310]-[5.380]. Especially Freeman & Lockyer v

Buckhurst Park Properties, Hely-Hutchison v Brayhead, CrabtreeVickers v Australian Direct Mail Advertising, Brick & Pipe v Occidental
Life Nominees.

Austin, R P and Ramsay I M, Fords Principles of Corporations

Law 13th ed, 2007, Chapter 13 (in Reading Materials).