Corporations Law
Question 1
In the first situation, the director has breached section 180 (2) that obligates all the directors to make a judgment in good faith and for a proper purpose. Additionally, the director should not have any personal interest in any subject matter relating to the company. A director should believe that any judgment they make is in the best interest of the corporation. Section 182(1) mandates directors not to improperly use their positions to gain an advantage for themselves as in the case Polyester.
In the second situation, she has gone contrary to section 183 regarding the use of information by directors, which directs that any person who obtains information because they are or they have been directors of a corporation must not improperly use the information to gain an advantage for themselves or for someone else. In this case, Polyester acquires information that the organization is in a serious financial situation and arranges the transfer of a large amount of assets to her own benefit of opening up a parallel company.
Director Polyester, in situation three, did not previously apply the business judgment with care and diligence, therefore gone against the guidelines as per the corporation’s law. The director has failed to make the judgment in good faith and for a proper purpose for the company. The director seems to have no adequate information about the subject matter of the situation to the extent of believing the appropriateness of the decision and didn’t take into consideration if the rationale of the decision was for the best interests of the corporation. Providing extra debt for a defaulter is against the company’s anticipations thus breach of the corporation’s act and general company rules.
Question 2
In a company, a member can be defined as a subscriber to a company’s memorandum of understanding and who has come to a consensus to become a member of the company and be listed in the entity’s membership register when the firm is established. Shareholders are also members. Additionally, shareholders who join firms at the inception time are known as founder members.
In contrast, a shareholder of a company refers to a person, a company, or an organization that holds certain stocks in the company. Any shareholder is mandated to own at least one share of the company’s stock or has mutual funds to make him or her to be a partial owner. In instances where the company succeeds or thrives well, shareholders are allocated certain dividends. Shareholders have the mandate of voting in or out the board of directors, making certain decisions regarding the company among other duties and obligations.
There are different ways an individual can be a member of a company. The first way is by subscribing to the memorandum of understanding of the company. Once one subscribes to the company’s memorandum, one is registered on the membership register. A person may become a member of a company by transfer, whereby in the case of public companies, shares are freely transferred and a person may buy shares from a member in the open market and then apply for registration of transfer. A person may become a member of a company by conduct upon agreement in writing. Additionally, a person may become a member by application and the offer is to be weighed for approval of the company. Any person is eligible for a company if not considered a minor, in this case below the age of 18 years and without contractual terms. The member should be sound mind. In the case of a foreigner, the member should meet all the legal requirements. All companies should at least have one member. Moreover, proprietor companies must have more than 50 registered members who shall not be employees of the company. Cessation of membership occurs if the member sells all his shares, death, bankruptcy, the surrender of shares and sales by a company.
Question 3
The corporation’s act provides definite statutory guidelines and obligations that directors are expected to adhere to in their line of duty. In the case of the company, each director has certain roles and powers but has to stick to the assigned section in avoiding overlap cases. The prime obligation of directors is to act within the powers, which is in accordance with the company’s constitution. The director should exercise the powers for exclusively the purposes are given. Directors should work hand in hand towards the mutual success of the company, which is through acting in good faith in a manner considered to benefit the organization. In the case of the company, all directors are expected to decisions so as to see the company progresses positively. In acting right all directors have to consider long term interests and consequences of any decisions they make. Each director should desire to maintain the best reputation standards of business conduct and most important act fairly between members of the company. Some decisions in the company were made out of personal interest for instance Ilyych’s choice for contracting a company for personal interest and Vesna’s interest for his brother. However, directors should act out of the conflict of interest and avoid the exploitation of opportunities in the company or indirectly through contracts. Directors should at all costs avoid accepting benefits from third parties. In the company context, some directors receive benefits from third parties for favors. Illyych and Vesna have personal interests in proposed transactions, which is against the director’s obligation according to the corporation’s law. Directors must adhere to all duties as per the definite roles in the company’s constitution. Sergey, Zviad’s brother who got into the company through the brother’s favor has apparently not adhered to the expected company obligations and failed to read the company’s financial statements which are essential in analyzing the company’s progress and making necessary changes appropriately. Directors have a duty not to disclose how they will vote in the next board meeting. However, a director may make a certain decision in the board meeting on behalf and for the benefit of the company. It is important to note that a company needs to keep clear and transparent records of the entire decision making processes that may protect or discipline the director towards claims that they may have acted upon breach of some rules and guidelines.
Question 4
If Joe’s company buys smaller holdings, the stakeholders in the companies to be acquired shall be generally compensated for their shares. Compensation can be in the form of cash or in stock from the buying company. It is important to note that the stock of the company being bought shall no longer exist after the purchase has been made. Joe’s company will compensate the stakeholders that it is buying by handing them some stock. For the stock-for-stock deal, the shares of the smaller holdings being acquired shall be replaced in a brokerage tally and replaced with a definite number of shares in Joe’s company. For the two parties, buyer and seller, once the stock-to-stock acquisition is formal, stock prices in the two companies shall converge to a planned ration. Moreover, compensation may be in the form of cash for stock deals, Joe’s company will have to pay cash in the transactions, buying the existing shareholders of the company at an agreed cost. The stock in the companies shall be replaced with the money in the brokerage account. Additionally, companies can be able to offer a mixture of cash and stock, in this case, the share shall be traded in a mix of stock in the novel company and cash.
For the purchase of assets by Joe’s company, his company shall not be liable for the seller’s debts and liabilities. However, there are some exceptions to the case, when the buyer agrees to pay for the liabilities and debts in return for a smaller buying price. Another exception is when the seller is fraudulent, left with insufficient funds or enough assets to pay the debts.
Joe’s company shall have to admit the due diligence law in acquiring new companies. Joe shall have to analyze the smaller holdings he intends to buy in identifying potential risks. Effective and thorough due diligence shall cover the legal, commercial, and financial base. Joe and the seller shall have to draft a share purchase agreement containing warranties protecting the buyer and conditions on the sale. The buyer company shall provide grounds for claiming any damages against the seller.
Question 5
The Corporations Act has provisions for fundraising within the company, in this case, the investors are the shareholders in the company required to fund the company in effecting its expansion in Australian domestic operations. According to the Corporations Act, shareholders have the obligation of lending the company some money or by taking up some shares of the company as an exchange. Generally, a public company offers securities for acquiring funds from investors. A disclosure document is required in describing all the regulated fundraising documents needed in processing securities. A prospectus is one of the disclosure document used in security processing. If the prospects contain information on the security details listed on the market, it may not need more information for there will be already information on the market. The company may use offer information statements that have lower disclosure information and are normally used when a company is fundraising up to $10 million. Offer statements require a copy of an audited financial report and a balance date for the company’s operation in the last six months. Additionally, the company may use a profile statement having core information regarding the company and the offer conditions. The Australian Securities and Investment Commission has to approve the use of the profile statement. If the company investors were less than 20, documentation could not have been recommended due to the fact that invitation and offers were availed to the individual investors.
Reference
Act, Corporations. “Corporations Act 2001.” Commonwealth of Australia (2001).
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“How Takeovers Work”. Investopedia, 2020, https://www.investopedia.com/terms/t/takeover.asp. Accessed 17 June 2020.
Lea, Jonathan. “The Main Legal Issues To Consider When Buying A Private Company”. Jonathanlea.Net, 2020, https://www.jonathanlea.net/2013/the-main-legal-issues-to-consider-when-buying-a-private-company/. Accessed 17 June 2020.
” Raising Funds In Australia | ASIC – Australian Securities And Investments Commission “. Asic.Gov.Au, 2020, https://asic.gov.au/regulatory-resources/fundraising/raising-funds-in-australia/. Accessed 17 June 2020.
“Summary Of Australian Statutory & Common Law Directors’ Duties 2015 – Business Coaching – International Business Mentors Pty Ltd.”. Internationalbusinessmentors.Com, 2020, https://www.internationalbusinessmentors.com/summary-of-australian-statutory-common-law-directors-duties-2015/. Accessed 17 June 2020.