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Company Law: An Interactive Approach, 2nd Edition

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Company Law: An Interactive Approach, 2nd Edition

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Description

Chapple’s award winning Company Law textbook is written for business or commerce students studying an accounting major. This updated second edition presents company law in an applied context rather than the doctrinal context many major legal publishers use.  It is concise and to the point, covering the core concepts in a typical company law unit without any extraneous topics. 

The Company Law interactive e-text features a range of instructional media content designed to   provide students with an engaging learning experience. This includes practitioner videos from Clayton Utz, animated work problems and questions with immediate feedback. Chapple’s unique resource can also form the basis of a blended learning solution for lecturers. 

Preface x

About the authors xi

Chapter 1 Business organisations 1

Introduction 3

1.1 Choosing a business structure 3

1.1.1 Sole trader 6

1.1.2 Partnership 6

1.1.3 Joint venture 6

1.1.4 Trust 6

1.1.5 Company 6

1.1.6 Cooperative 6

1.1.7 Incorporated association 7

1.1.8 Hybrid business structures 7

1.2 Sole traders 7

1.2.1 What is a sole trader? 8

1.2.2 Advantages of being a sole trader 9

1.2.3 Disadvantages of being a sole trader 9

1.3 Partnerships 10

1.3.1 What is a partnership? 10

1.3.2 Advantages of a partnership 12

1.3.3 Disadvantages of a partnership 13

1.3.4 Partners’ dealings with each other 14

1.3.5 Partners’ fiduciary and statutory duties 14

1.3.6 Property of a partnership 15

1.3.7 Changes to partners 15

1.3.8 Dissolving a partnership 16

1.3.9 Alternative forms of partnership 16

1.4 Joint ventures 17

1.4.1 What is a joint venture? 17

1.4.2 Advantages of a joint venture 18

1.4.3 Disadvantages of a joint venture 18

1.4.4 The joint venture agreement 19

1.5 Trusts 20

1.5.1 What is a trust? 20

1.5.2 Advantages of a trust 21

1.5.3 Disadvantages of a trust 22

1.5.4 Types of trust 22

1.5.5 Duties, rights, liabilities and powers of trustees 24

1.5.6 Other administrative issues for trustees 26

1.6 Companies 27

1.6.1 Key elements of a company 27

1.6.2 Types of companies in Australia 27

1.6.3 Advantages of a company 29

1.6.4 Disadvantages of a company 29

1.7 Cooperatives 30

1.7.1 Trading cooperatives 30

1.7.2 Non-trading cooperatives 33

1.7.3 The difference between cooperatives and not-for-profit organisations 34

1.8 Incorporated associations 34

1.8.1 Key features of an incorporated association 36

1.8.2 Advantages of an incorporated association 37

1.8.3 Disadvantages of an incorporated association 37

1.9 Hybrid business structures 37

1.9.1 Why have hybrid business structures? 38

1.9.2 Examples of hybrid business structures 39

1.10 Business names 40

1.10.1 Registration 40

1.10.2 What names cannot be registered? 41

1.10.3 Display and use of the business name 42

Summary 43

Key terms 44

Review questions 45

Applied problems 45

Acknowledgements 47

Chapter 2 Companies and incorporation 48

Introduction 49

2.1 Company regulation in Australia 50

2.1.1 The Corporations Act 2001 (Cth) 50

2.2 Classes of companies 51

2.2.1 Proprietary companies 51

2.2.2 Public companies 52

2.2.3 Listed or unlisted 53

2.2.4 Member liability 54

2.2.5 Comparing company types 55

2.2.6 Conversion between proprietary and public company status 57

2.3 Starting a company 57

2.3.1 Step 1: Choose a company structure 57

2.3.2 Step 2: Choose a company name 58

2.3.3 Step 3: Decide how to operate the company 59

2.3.4 Step 4: Understand the legal obligations 59

2.3.5 Step 5: Obtain consent from officers, members and occupiers 59

2.3.6 Step 6: Formally register the company 60

2.3.7 Step 7: Meet legal obligations regarding use of company name, ACN and ABN 60

2.4 Separate legal entity 61

2.5 Corporate groups 63

2.5.1 Legal issues relating to corporate groups 64

2.6 The corporate veil 64

2.6.1 The legal principle of the corporate veil 65

2.6.2 The corporate veil in relation to corporate groups 66

2.6.3 Lifting the corporate veil 66

2.7 Limited liability 69

Summary 72

Key terms 73

Review questions 73

Applied problems 74

Acknowledgements 75

Chapter 3 Company constitution 76

Introduction 77

3.1 Rules and procedures 77

3.1.1 Companies established prior to July 1998 78

3.1.2 Companies established after July 1998 78

3.2 Replaceable rules 79

3.3 The company constitution 83

3.3.1 When is the company constitution adopted? 83

3.3.2 The contents of the company constitution 84

3.4 Objects clause 85

3.4.1 Practical implications of the objects clause 86

3.5 Who is bound by the replaceable rules and constitution? 88

3.5.1 Contract between the company and each member 89

3.5.2 Contract between the company and each director and company secretary 89

3.5.3 Contract between a member and each other member 90

3.5.4 Remedies for breach of statutory contract 91

3.6 Changing the rules of a company 91

3.6.1 Process to change the constitution 92

3.6.2 The purpose and fairness of the change 92

3.6.3 Application of changes to existing members 93

3.6.4 Entrenched provisions 93

Summary 94

Key terms 94

Review questions 95

Applied problems 95

Acknowledgements 96

Chapter 4 Promoters and pre-registration contracts 97

Introduction 98

4.1 Promoters 98

4.1.1 Identifying promoters 100

4.2 Duties and liabilities of promoters 101

4.2.1 Disclosure 103

4.3 Remedies for breach 105

4.4 Pre-registration contracts 106

4.4.1 The superseded common law 106

4.4.2 Pre-registration contracts under the Corporations Act 107

Summary 110

Key terms 110

Review questions 111

Applied problems 111

Acknowledgements 112

Chapter 5 Companies, outsiders and corporate liability 113

Introduction 115

5.1 How companies exercise their legal capacity and powers 115

5.1.1 Corporate liability 116

5.2 Determining whether a contract is binding by and against the company 116

5.2.1 Entering a contract directly 117

5.2.2 Entering a contract indirectly 119

5.3 Determining whether an agent has substantive authority 120

5.3.1 Actual authority 120

5.3.2 Apparent authority 122

5.4 The indoor management rule 124

5.4.1 Ultra vires 125

5.4.2 Indoor management rule and constructive notice 126

5.5 Statutory assumptions by outsiders in dealings with the company 128

5.5.1 Entitlement to make assumptions 128

5.5.2 Assumptions that can be made 128

5.6 Liability in tort and in crime 131

5.6.1 Primary liability 131

5.6.2 Vicarious liability 132

5.6.3 Liability in tort 132

5.6.4 Liability in crime 133

Summary 136

Key terms 136

Review questions 137

Applied problems 138

Acknowledgements 139

Chapter 6 Membership, members’ powers and dividends 140

Introduction 141

6.1 Members as owners 141

6.1.1 Membership 143

6.1.2 Recording membership 143

6.1.3 Limit on members’ rights 151

6.2 Members’ meetings 152

6.2.1 Types of members’ meetings 153

6.2.2 Calling a meeting 154

6.2.3 Proceedings at members’ meeting 159

6.3 Dividends 164

6.3.1 Entitlement to dividends 164

6.3.2 Payment of dividends 165

6.3.3 Consequence of improper dividend payment 166

6.3.4 Taxation of dividends 166

Summary 167

Key terms 168

Review questions 168

Applied problems 168

Acknowledgements 170

Chapter 7 Corporate governance and company management 171

Introduction 172

7.1 Corporate governance 172

7.1.1 Theories of corporate governance 173

7.1.2 A working definition of corporate governance 174

7.1.3 Corporate governance and company management 176

7.2 Officers 176

7.2.1 Directors 177

7.2.2 Company secretary 179

7.2.3 Senior managers 180

7.3 Roles and powers of directors and members 180

7.3.1 Directors 181

7.3.2 Members’ powers over directors 186

7.4 Appointment, remuneration, resignation, removal 187

7.4.1 Appointment of a director 187

7.4.2 Directors’ remuneration 190

7.4.3 Resignation and vacation of office 191

7.4.4 Removal of directors 191

Summary 193

Key terms 194

Review questions 194

Applied problems 194

Acknowledgements 196

Chapter 8 Directors’ and officers’ duties A 197

Introduction 199

8.1 Officers’ duties 199

8.1.1 Duties under common law and equity 200

8.1.2 Duties under the Corporations Act 201

8.1.3 The interaction of general law and statutory duties 202

8.1.4 Penalties and remedies 203

8.2 The duty of care and diligence 203

8.2.1 Who owes the duty of care and diligence? 204

8.2.2 To whom is the duty of care and diligence owed? 204

8.2.3 Determining whether a director has breached their duty of care 205

8.2.4 The consequences of breaching the duty 205

8.3 The standard of care 206

8.3.1 The minimum standards of care 206

8.3.2 The standards of care by types of officers 207

8.4 Diligence 209

8.4.1 Attending board meetings 210

8.4.2 Delegation 210

8.5 Defences against a breach of duty of care and diligence 212

8.5.1 The business judgment rule in statute 212

8.6 The duty to prevent insolvent trading 214

8.6.1 The duty to prevent insolvent trading under s 588G of the Corporations Act 215

8.6.2 When is a debt incurred? 216

8.6.3 Other requirements as to incurring debts 218

8.6.4 The time at which a company becomes insolvent 218

8.6.5 Reasonable grounds for suspecting insolvency 218

8.6.6 Defences to a breach of s 588G 218

8.6.7 Penalties and remedies 219

8.6.8 A safe harbour against liability for insolvent trading 219

Summary 221

Key terms 221

Review questions 222

Applied problems 222

Acknowledgements 225

Chapter 9 Directors’ and officers’ duties B 226

Introduction 227

9.1 Good faith 227

9.2 Best interests of the company 229

9.2.1 Members’ interests — individuals, classes and as a whole 230

9.2.2 Creditors’ interests 230

9.2.3 Employees’ interests 231

9.2.4 Corporate groups’ and nominee officers’ interests 232

9.3 Proper purpose 233

9.3.1 Determining a breach of the duty of proper purpose 233

9.3.2 Defences for breach of proper purpose 234

9.4 Conflict of interest under general law 235

9.4.1 When a conflict may arise 235

9.4.2 Defences 239

9.5 Statutory provisions relating to conflict of interest 240

9.5.1 Related party transactions 241

9.5.2 Defences 242

9.6 Remedies and penalties for breach of duty 244

9.6.1 Summary of consequences for breaches of directors’ duties 245

Summary 246

Key terms 246

Review questions 247

Applied problems 247

Acknowledgements 250

Chapter 10 Financing a company via equity or debt 251

Introduction 252

10.1 Choosing between equity and debt 252

10.2 Issuing shares 254

10.2.1 Definition of a share 254

10.2.2 Share issues 255

10.2.3 The statutory power to issue shares 256

10.3 Different types of shares 257

10.3.1 Ordinary shares 258

10.3.2 Bonus shares 258

10.3.3 Preference shares 258

10.3.4 Partly paid shares 259

10.3.5 Equity crowdfunding 259

10.4 Debt financing 260

10.5 Debentures 262

10.5.1 Statutory requirements to issue debentures 263

10.5.2 Parties to a debenture 263

10.6 Security for debts 264

10.6.1 Registration of a security 264

10.6.2 Circulating and non-circulating security interest 265

10.6.3 Negative pledges 266

10.6.4 Romalpa clause 267

10.6.5 Voidable antecedent transactions in the event of insolvency 267

Summary 269

Key terms 269

Review questions 270

Applied problems 271

Acknowledgements 271

Chapter 11 Disclosure 272

Introduction 273

11.1 Why disclosure is required 274

11.2 Hard, hybrid and soft law 274

11.2.1 Australian Securities and Investments Commission 274

11.2.2 Australian Securities Exchange 275

11.2.3 Australian Accounting Standards Board 275

11.2.4 Auditing and Assurance Standards Board 276

11.3 Annual reporting 276

11.3.1 Financial report 278

11.3.2 Directors’ report 286

11.3.3 Auditor’s report 286

11.4 Fundraising 286

11.4.1 Disclosure when issuing securities in the primary markets — s 706 288

11.4.2 Disclosure when selling securities in the secondary markets (secondary sales) — s 707 288

11.4.3 When disclosure is not required for issuing securities 288

11.4.4 Form and content of fundraising disclosure documents 289

11.5 Misleading and deceptive disclosure 291

11.5.1 Liability for defective disclosure 292

11.6 Continuous disclosure 294

11.6.1 Section 674 and ASX Listing Rule 3.1 295

11.6.2 Continuous disclosure and generally available information 297

11.6.3 Continuous disclosure and material effect 298

11.6.4 Liability and offences relating to continuous disclosure 298

11.7 Insider trading 299

11.7.1 Sections 1043A and 1042A 300

11.7.2 Insider trading and information 301

11.7.3 Insider trading and materiality 301

11.7.4 Insider trading and generally available information 301

11.7.5 Insider trading exceptions 301

11.7.6 Liability and offences relating to insider trading 302

Summary 303

Key terms 304

Review questions 304

Applied problems 305

Acknowledgements 306

Chapter 12 Members’ remedies 307

Introduction 308

12.1 Members’ rights and remedies 309

12.1.1 The balance of majority and minority members’ rights 309

12.1.2 Statutory and contractual rights 310

12.1.3 Remedies 310

12.2 Statutory remedies 312

12.2.1 The oppression remedy 312

12.2.2 Winding up a company 316

12.2.3 Statutory injunction 317

12.3 Statutory derivative action 319

12.3.1 Parties that can seek to bring a statutory derivative action 319

12.3.2 Proceedings will be on behalf of the company 319

12.3.3 When the court will grant leave 320

12.4 Personal action 321

12.4.1 A member’s personal rights 321

12.4.2 Statutory contract 322

12.4.3 General law remedies 322

Summary 324

Key terms 324

Review questions 325

Applied problems 325

Acknowledgements 327

Chapter 13 Receivership and administration 328

Introduction 329

13.1 Insolvency 329

13.1.1 The test for insolvency 330

13.2 Receivership 331

13.2.1 Appointment of the receiver 332

13.2.2 Effects of receivership 333

13.2.3 Role of the receiver 333

13.2.4 Powers of the receiver 336

13.2.5 Duties and liabilities of the receiver 336

13.2.6 Termination of receivership 337

13.3 Voluntary administration 337

13.3.1 Appointment of an administrator 338

13.3.2 Effects of administration 339

13.3.3 Role of the administrator 339

13.3.4 Powers of the administrator 339

13.3.5 Duties and liabilities of a voluntary administrator 339

13.3.6 Process of voluntary administration 340

13.3.7 Deed of company arrangement 341

13.3.8 Termination of voluntary administration 341

Summary 343

Key terms 343

Review questions 343

Applied problems 344

Acknowledgements 344

Chapter 14 Liquidation 345

Introduction 346

14.1 Liquidation or winding up 346

14.1.1 Voluntary winding up 348

14.1.2 Compulsory winding up 349

14.2 Appointment of a liquidator 349

14.2.1 Powers of the liquidator 350

14.2.2 Duties and functions of a liquidator 350

14.3 Property available to a liquidator 351

14.3.1 Voidable transactions 351

14.3.2 Types of voidable transactions 352

14.3.3 Defences for creditors 356

14.4 Final distributions and deregistration 356

14.4.1 Distribution to creditors 357

14.4.2 Deregistration of company 358

Summary 359

Key terms 359

Review questions 359

Applied problems 360

Acknowledgements 361

Appendix A: Retrofit consitution 362

Appendix B: Legislative appendix (e-chapter)

Index 391