Commonwealth Consolidated Acts
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CORPORATIONS ACT 2001 - SECT 1.5.1
What registration means1.1 Separate legal entity that has its own powers
As far as the law is concerned, a company has a separate legalexistence that is distinct from that of its owners, managers, operators,employees and agents. A company has its own property, its own rights and itsown obligations. A company's money and other assets belong to the companyand must be used for the company's purposes.
A company has the powers of an individual, including the powersto:
• own and dispose of property and other assets
• enter into contracts
Once a company is registered, its separate legal status,property, rights and liabilities continue until ASIC (Australian Securitiesand Investments Commission) deregisters the company.
[sections 119, 124--125, 601AA--601AD]
1.2 Limited liability of shareholders
Shareholders of a company are not liable (in their capacity asshareholders) for the company's debts. As shareholders, their onlyobligation is to pay the company any amount unpaid on their shares if they arecalled upon to do so. However, particularly if a shareholder is also adirector, this limitation may be affected by other laws and the commercialpractices discussed in 1.3 and 1.4.
1.3 Director's liability for company's debts
A director of a company may be liable for debts incurred by thecompany at a time when the company itself is unable to pay those debts as theyfall due.
A director of a company may be liable to compensate the companyfor any losses the company suffers from a breach of certain of thedirector's duties to the company (see 5.3).
In addition to having liability for the company's debts orto pay compensation to the company, a director may also be subject to a civilpenalty.
If a company holds property on trust, a director of the companymay be liable in some circ*mstances for liabilities incurred by the company astrustee.
[sections 197, 344, 588G, 588J, 588M, 1317H]
1.4 Director's liability as guarantor/security over personal assets
As a matter of commercial practice, a bank, trade creditor oranyone else providing finance or credit to a company may ask a director of thecompany:
• for a personal guarantee of the company's liabilities; and
• for some form of security over their house or personal assets tosecure the performance by the company of its obligations.
The director of a company may, for example, be asked by a bankto give a mortgage over their house to secure the company's repayment of aloan. If the company does not repay the loan as agreed with the bank, thedirector may lose the house.
A company continues to exist even if 1 or more of itsshareholders or directors sells their shares, dies or leaves the company. If acompany has only 1 shareholder who is also the only director of the companyand that person dies, their personal representative is able to ensure that thecompany continues to operate.
1.6 Rules for the internal management of a company
The Corporations Act contains a basic set of rules for theinternal management of a company (appointments, meetings etc.).
Some of these rules are mandatory for all companies. There are afew special rules for single shareholder/single director companies.
Other internal management rules in the Corporations Act arereplaceable rules. The replaceable rules do not apply to:
• a single shareholder/single director company; or
• a company that had a constitution before the introduction of thereplaceable rules regime and has not repealed it.
A company does not need to have a separate constitution of itsown; it can simply take advantage of the rules in the Corporations Act. Thecompany will need a constitution only if it wants to displace, modify or addto the replaceable rules.
1.7 How a company acts
A company does not have a physical existence. It must actthrough other people.
Individual directors, the company secretary, company employeesor agents may be authorised to enter into contracts that bind the company (see7).
In some circ*mstances, a company will be bound by something doneby another person (see 1.8).
1.8 Directors
The directors of a company are responsible for managing thecompany's business. It is a replaceable rule (see 1.6) that generally thedirectors may exercise all the powers of the company except a power that theCorporations Act, a replaceable rule or a provision of the company'sconstitution (if any) requires the company to exercise in general meeting.
The only director of a company who is also the only shareholderis responsible for managing the company's business and may exercise all ofthe company's powers.
The Corporations Act sets out rules dealing with the calling andconduct of directors' meetings. Directors must keep a written record(minutes) of their resolutions and meetings.
There are 2 ways that directors may pass resolutions:
• by having all of the directors record and sign their decision.
If a company has only 1 director, the sole director may alsopass a resolution by recording and signing their decision.
[sections 198A, 198E, 202C, subsection 202F(1), sections 248A - 248G, 251A]
1.9 Shareholders
The shareholders of a company own the company, but the companyhas a separate legal existence and the company's assets belong to thecompany.
Shareholders can make decisions about the company by passing aresolution, usually at a meeting. A "special resolution" usuallyinvolves more important questions affecting the company as a whole or therights of some or all of its shareholders.
There are 2 ways that shareholders may pass a resolution:
• by having all of the shareholders record and sign theirdecision.
If a meeting is held, an ordinary resolution must be passed by amajority of the votes cast by shareholders of the company entitled to vote onthe resolution at the meeting in person or by proxy (if proxies are allowed).A special resolution must be passed by at least 75% of the votes cast byshareholders of the company entitled to vote on the resolution and who vote atthe meeting in person or by proxy (if proxies are allowed).
The sole shareholder of a company may pass a resolution byrecording and signing their decision.
A company must keep a written record (minutes) of themembers' resolutions and meetings.
[sections 9 ( special resolution ), 249A, 249B, 249L, 251A]
1.10 What others can assume about the company
Anyone who does any business with the company is entitled toassume that the company has a legal right to conduct that business unless theperson knows, or suspects, otherwise. For example, an outsider dealing withthe company is entitled to assume:
• that a person who is shown in a notice lodged with ASIC as beingthe director or company secretary of a company has been properly appointed andis authorised to act for the company; and
• that a person who is held out by the company to be a director,company secretary or agent of the company has been properly appointed and isauthorised to act for the company.
[sections 128--130]
