BTC1110 Lecture Notes - Lecture 11: Corporations Act 2001, Legal Personality, Apparent Authority
15 Jun 2018
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1
LAW OF BUSINESS ORGANISATIONS
• Idea: the company is a separate artificial legal entity, independent of management and owners
(shareholders) and with no tangible form
• Shareholders provide capital but are not involved in management and, most importantly, have
limited risk
• Organisations varies in size
• Typically created under the Corporations Act 2001 (Cth) and ASIC Act 2001 (Cth) (ASIC is the
national regulator).
Features of a Company
• A separate legal person
• S124: a company has the legal capacity and powers of an individual
• A company is separate from its owners (shareholders) and its managers (CEO and
directors)
• A company's obligations (debts) are its own
• A company's owners generally enjoy limited liability (not liable for debts of
company)
• A company's managers are also not personally liable for the company's debts or
obligations
• A company's property is its own, not managers nor owners
• A company can sue and be sued in its own name
• A company can commit a crime/tort or other wrongful conduct
• It has perpetual succession (unlike p'ship), company still continues to exist despite
situations like an owner's death
Formation of a Company
• Administration - responsibility of ASIC (p464)
• Registration - through ASIC
• To register a company, a person must lodge an application with ASIC and pay the
required fees (Corporations Act s117)
• Types of Companies (p467)
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2
Nature of a Company
• 'the corporate personality' (CA s124)
• The recognition that a company is a separate legal entity is the the foundation of modern
corporations
• Salomon v Salomon & Co Ltd (p465)
• Aaron S was sole proprietor of a successful business
• Had a wife and several children
• Four sons worked with him and wanted to be partners in business
• A turned the business into a limited company with the required seven shareholders
(wife and 5 children) - two eldest became directors
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3
• Shortly after company was floated, business was badly affected by strikes and severe
downturn in the market for their products.
• A leant additional money to save company but company failed
• Unsecured creditors (employees/creditors) argued that A and his company were in
essence the same person and that he should actually be liable for the debts of company
• Issue? How do we view the relationship between Salomon and the Co?
• Court held:
• whole transaction was against the true intent of the CA (stipulated a company
must have seven active and independent members), that the company was a
'sham' and that A had committed a fraud by overvaluing the company
• it looks like a fraud – given that S got 20,000 shares and each of the other 6
shareholders got 1 share each
• Decided A was personally liable for the debts
• House of Lords reversed decision:
• Said Act required seven members but said nothing about it being independent or
active
• No fraud
• Therefore, as company was properly incorporated and there was no fraud in the
valuation of the company, there was no basis for holding A personally liable
• Case confirmed that the separate legal personality principle even applied even
where the company is in reality a one-man band
• Owner of business can as a result, use the separate corporate personality to shield
himself from liability
• An application of Salomon
• A company is separate from its owner
o Lee v Lee’s Air Farig:
• Facts: L owned 2999 of the 3000 shares and was the CEO. He died while
aeial spaig ad ife laied okes opesatio. But this ould ol
e paid to a eploee. Could L e a eploee of a oe-a opa
for the purposes of work care?
• Held: A oe as L as a e a eploee of the company. The rule
in Salomon meant that Lee could be employed by the company he owned
because the corporation and L were separate entities. Therefore L, as
director (an agent of the company), entered into a contract with L, in his
personal capacity.
Constitutions and replaceable rules
469-70
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Document Summary
Idea: the company is a separate artificial legal entity, independent of management and owners (shareholders) and with no tangible form. Shareholders provide capital but are not involved in management and, most importantly, have limited risk: organisations varies in size, typically created under the corporations act 2001 (cth) and asic act 2001 (cth) (asic is the national regulator). Features of a company: a separate legal person. It has perpetual succession (unlike p"ship), company still continues to exist despite situations like an owner"s death. Formation of a company: administration - responsibility of asic (p464, registration - through asic, to register a company, a person must lodge an application with asic and pay the required fees (corporations act s117, types of companies (p467) "the corporate personality" (ca s124: the recognition that a company is a separate legal entity is the the foundation of modern corporations.
