BLAW20001 Lecture Notes - Lecture 2: Dividend Imputation, Unlimited Company, Sole Proprietorship
19 Jun 2018
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WEEK 2 CORPORATE LAW
Business planning and setting up companies.
Incorporated v Unincorporated:
Unincorporated- no legal personality separate from their participators (sole trader, clubs, partnerships)
Incorporated- separate legal persons (companies and corporations). Can have companies with limited by shares of
unlimited liabilities. Companies can have one shareholder and one director with $1 of share capital up to indefinite
numbers. Equity capital can be raised by companies. Some larger businesses have reporting and audit requirements.
Dividend imputations can split dividends and tax obligations widely. Advantages of companies include limited
liability, easier to raise capital, different tax treatment in regards to dividend imputation, flexibility to be tailored to
specific needs. Disadvantages include set up costs and larger companies (listed public companies) have continuous
disclosure (information in relation to share price must be disclosed).
Types of Companies:
Corporations formed under the Corporations Act are “companies”. Either public (Ltd. Limited by shares, limited by
guarantee (in the case that a company fails people have a designated amount they will contribute), unlimited company,
no liability company ((start-up) mining companies can withdraw and forfeit shares at any time) or proprietary (Pty
Ltd. A private company, limited by shares, limited by guarantee (not indented to make profit)).
Classification as Public or Proprietary
Proprietary s 113:
-No more than 50 non-employee members
-Must have one or more directors
Public company
-Everything other than a proprietary company s 112
-Unlimited number of shareholders
-Must have 3 or more directors
-Can raise capital from the public
-Compulsory AGM and financial statements
s 113:Proprietary companies. No more than 50 non-employee members. No fundraising
s 112: May be a company limited by shares or an unlimited company with share capital.
s 115:
s 201A: Proprietary companies must have one or more directors.
s 201A(2): Public companies must have three or more directors.
s 254W:
Piercing the corporate veil s 588V: making shareholders liable for corporate debts.
If a company is sued, shareholders and managers of the company are not required to pay the debts due of the company
unless the court decided to pierce the corporate veil. And any amount of debts paid is limited to the amount of assets
the company holds. The court holds that in the absence of evidence that the subsidiary company is a mere facade, the
fact that the parent company exercises control and influence over a subsidiary did not itself justify lighting the
corporate veil as to create a duty of care on the part of the parent company towards an employee of the subsidiary.
Sometimes at the request of a creditor, the courts will pierce the corporate veil to hold a major shareholder or director
credible for the companies liabilities. In such cases, the company’s rights, privileges, duties, liabilities and acts are
treated as those of its members. Participants in the company are identified and liability is imposed on them. This can
still be the case for insolvent companies. The corporate veil is pierced when the corporate form is being used to avoid
existing legal duty, where the company is acting as an agent or partner of its controller or where a particular law
shows an intention that the corporate veil should be disregarded in applying it Courts often note that a person cannot
choose to use the corporate form where it suits them and then later ask the courts to disregard the legal effect of that
form.
If a company is formed for the sole purpose of for the dominant purpose of doing something that one of the
participants is prevented from doing in its personal capacity through an existing legal obligation, the courts may pierce
the corporate be to treat the obligation which binds the individual as one that also binds the company.
s 588V:
Gilford Motor Co Ltd v Horne and Jones v Lipman
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Unincorporated- no legal personality separate from their participators (sole trader, clubs, partnerships) Can have companies with limited by shares of unlimited liabilities. Companies can have one shareholder and one director with of share capital up to indefinite numbers. Some larger businesses have reporting and audit requirements. Dividend imputations can split dividends and tax obligations widely. Advantages of companies include limited liability, easier to raise capital, different tax treatment in regards to dividend imputation, flexibility to be tailored to specific needs. Disadvantages include set up costs and larger companies (listed public companies) have continuous disclosure (information in relation to share price must be disclosed). Corporations formed under the corporations act are companies . Ltd. a private company, limited by shares, limited by guarantee (not indented to make profit)). Everything other than a proprietary company s 112. Compulsory agm and financial statements s 113:proprietary companies. Piercing the corporate veil s 588v: making shareholders liable for corporate debts.
