Week 2 portfolio questions:

Explain how a company comes into existence:

A company is defined as a firm incorporated under the Corporations Act once registered, which acquires legal rights as a person and becomes a separate legal entity, according to s.9 of the Corporations Act 2001 (CTH).

A company is formed as a legal entity on the day it is registered, which can be done by the promoter, a person who gather interested parties for the registration and intends to establish a company, ‘2019 Stephan Graw’. However, for a company to come into existence, it must first be lodged and registered with ASIC, as well as lodging an application for registration under the Corporations Act, which contains specific rules and regulations for how a company will fulfil its applications, such as the proposed type of company s.112, the registered name s.148, and other fulfilments which are set out in s.117 of the Corporations Act. After following all the regulations and process in accordance with s.117, a person or promoter may register a company, which can be conveniently accessed and finished electronically, for a price of $488, plus the cost of reserving a name which is $36.

Therefore, allows a company to come into existence as a body corporate at the beginning of the day on which it is registered with the name specified in its certificate of registration, allowing the company to acquire legal rights, and become a separate legal entity from its members and shareholders, see in case, Salomon & Co [1897] AC22.

Discuss what is meant by ‘lifting the corporate veil’ and give an example:

A corporate veil is the notion of covering activities that would otherwise be illegal, fraudulent, or contrary to public interest, ‘Stephan Graw, 2019’. In general, lifting the corporate veil is a legal decision made by the courts to treat the rights or obligation of a company as the rights or liabilities of its shareholders or directors who are acting on behalf of the company, under both statue and common law.

It is asserted that courts can lift or pierce the corporate veil in certain situations when the genuine legitimate situation of an organisation and the conditions under which its matter as a corporate body will be overlooked and the corporate veil is lifted. For example, the Corporations Act s.588G makes a director liable if he or she incurs debts on behalf of the company and there are foreseeable or reasonable reasons that the company would be unable to repay the obligations, bringing up the concept of trading insolvent. Similarly, in s.254T of the corporations Act, if dividend payments are made from the company’s capital, the directors are held personally liable for such activities, resulting in the courts overlooking and lifting the corporate veil due to illegitimate acts, which is furthermore seen in the case of, GREEN v BESTOBELL INDUSTRIES PTY LTD [1982] WAR 1.

Discuss the ways in which a company can enter a contract:

A company is an artificial legal entity that cannot act on its own; for a contract to be created with a company, a person must act on its behalf. A corporation may engage into a contract directly through its board of directors or general meeting, or indirectly through agents working on its behalf, with specified standards that must be followed in accordance with the Corporations Act.

For a company to join a contract indirectly, the agent must have the real authority to bind the corporation to the contract, just as a company can form, vary, ratify, or discharge a contract through an agent acting on its behalf. In addition, the agent must follow the express or implied authority to form a contract in accordance with s.126(1) of the Corporations Act. Express authority refers to the agent’s actual authority, which may be bestowed in writing, or implied authority, which explores and indicates the agent’s ability to perform specific tasks. Furthermore, a company may enter a binding contract directly in accordance with s.127 of the Corporations Act by the directors or other authorised persons, such as a company secretary, executing a contractual document through the concept of affixing a common seal, which is executed by two directors or a director and a company secretary witnessing the affixation of the seal s.127, or by two directors or a director and company secretary signing a document, allowing the company to enter into a contract directly. Thus, allowing a company to enter a contract directly or indirectly, see in case, Tesco Supermarkets Ltd v Nattrass [1972] AC 153.

Reference:

Understanding business law, Stephan Graw, 2019

Case reference:

GREEN v BESTOBELL INDUSTRIES PTY LTD [1982] WAR 1.

Salomon & Co [1897] AC22.

Tesco Supermarkets Ltd v Nattrass [1972] AC 153.