Corporations Law

To: Mr. Jo Delaney

From: Trainee

Subject Matter: Legal memorandum for company SafeT1st

Issue 1: Risks Related to Purchase of Stock Prior to Establishment of Business Entity

The problems with making purchase of stock before the company is founded and ready to engage into transactions are multi-fold, especially given the conditions in which the supplier of the PPE is considered.

To begin with, we look at the financial problems involved with the early purchase of stock.
Upon first glimpse, it was realised that the offer price for the personal protection equipment, although discounted as per the supplier’s claims, is unchecked as regards other suppliers of the same merchandise in the market.

It is possible that there exist sellers who are offering the same product for a much lesser asking price, and it is equally probable that the quality of the purchased selling stock might be inferior and might not be saleable at all, thus leaving SafeT1st reeling under the stress of financial liabilities thanks to the hefty shopping which took place courtesy of its managers. 

The next issue can possibly be a lack of market space for the purchased items. Although the present conditions warrant exceptionally high demand for PPEs, it is possible that there is found a cure for the pandemic, and that the need for observing intense safety procedures is done away with.

As a result, both medical personnel as well as the individuals who were potential buyers for the PPEs will become non-existent for the purposes of the company’s profits, and the stock will be forced to either be disposed of, or sold at nearly zero margin prices.

Finally, the establishing of a corporate entity itself is an issue in the prevailing conditions, and therefore, if the registration and otherwise setting up of the company is delayed beyond the managers’ precautionary expectations, the sale would be delayed, and consequently, the profits which can be earned would be significantly lower.

Issue 2: Process of Setting up Safet1st

The route for establishing SafeT1st are as follows:

  1. Setting up the company on one’s own, or with the assistance of a service provider?

The company registration process can be completed by oneself using Form 201 of the Australian Securities and Investments Commission retrievable from their official web portal, and making payment of the requisite asking subscription charges. 

An alternate method is where one can hire a Private Service Provider which uses a software interacting directly with the Commission as well as paying the necessary emoluments. 

The service providers can be contacted through the internet via regular paper forms. Either way, service providers tend to charge an additional remuneration which is payable over and above the Securities Commission’s company-registration fee.

  1. Finalising a name for the establishment

A company name must be finally arrived at, and the same must be available as well. The Securities Commission has set up limitations on the characters, words and phrases which are considered acceptable when placed in the title of a business.

If a standard name is opted not to be used, a unique identity called the ‘Australian Company Number’, issued by the aforementioned authority, is allowed to be used alternatively as the official title of the business.

Further, the suffixes to the official title of the company must depict the accountability of its affiliates, as well as their rank in the establishment. To help elucidate better:

  • Where the affiliates' answerability is restricted to only the sum not paid on their shares, the company title must be suffixed must end with 'Proprietary Limited', also written as ‘Pty. Ltd.’
  • Where, however, the affiliates' burden is unlimited, the title must conclude with the term 'Proprietary'.

Prior to 2012, the existence of numerous business establishments with the matching titles was valid in law, on the precondition that their registration took place in separate states. The aforementioned has now become an impossibility, thanks to the Commission’s common national register for company names.

In the present case, since the clients Jes and Peta have agreed to the name ‘SafeT1st Pty. Ltd.’ provisionally, the step is found to be complete.

  1. Internal Guidelines of a commercial establishment

Prior to the setting up of a business entity, it is a pre-requisite to put a finger on the kind of rules it will be governed by, when it comes to managing its internal affairs. 

These internal rules normally comprise of more or less the following:

  1. Provisions of the Corporations Act, also termed the ‘replaceable rules’. These rules do away with the need for a company to have its own dedicated Constitution.
  2. A dedicated constitution of the company
  3. A conjunction of both, a constitution as well as the rules formed from the Corporations Act.

A company which is comprised of a unitary director or affiliate is not required by law to have its own constitution.

  1. Selecting stockholders and members of the board

The owners of the company are required to finalise who will be the shareholders, also called the ‘members’ and who will act as the members of the company board. These members will be the individuals who regulate the company’s route ahead and its other strategies[1].

Any commercial company requires, compulsorily, that all members of the board must have attained at least an age of 18 years, and that a minimum of one board member must be customarily an Australian denizen.

Furthermore, written consents are required from all members of the board of directors, as well as from every individual who has agreed to become a stakeholder in the company.

  1. Location of the entity’s registration

Any business establishment set up in any state of the island ‘down under’ can be registered anywhere within the boundaries of the territory of the country. In certain cases, a supplementary registration for the Goods and Services Tax may be requested. Subsequent to a successful registration, the establishment is bestowed with a certification.

  1. Position of the Company Headquarters

Any commercial entity has to necessarily recommend a chief place of business and a head office. However, in cases where the head office is at a premises neither owned nor in possession of the entity, the assent of the person in occupation of the said premises must be acquired prior to the suggestion of the location.

  1. Registering the company

A business entity is registerable through the following channels:

a. The Business Registration Service (BRS)

An entity has the option of registering through the Business Registration Service. This service chains numerous commercial and cess registrations at a single juncture, simplifying the procedure of beginning a business.

b. Engaging a private service provider (PSP)

As discussed under the first header, the owners of a commercial entity may opt for the registration of their business entity via assistance from a private service provider (PSP). A PSP can be either the owner’s bookkeeper or their attorney, or rather an entirely separate commercial establishment offering digital services in line with the Investments Commission.

  1. Post completion of the registration

Subsequent to the successful evaluation of the application for listing, the Australian Securities & Investments Commission will:

  • Provide the company with a unique code of identification (ACN)
  • Add the company to the roll of registration
  • Deliver to the establishment the Record of Registration

Additionally, a ‘corporate key’ might also be provided to the company.
It is a unique code for the company, which is an essential requisite for the purposes of creation of a virtual account over the internet and for the updating of the company details on the said account.

Issue 3: Internal Rules Preferably Which Should Be Adopted by The Company

Answer 3: The internal governance of a business entity may be regulated through:

  • Provisions of the Corporations Act 2001 which the entity is subject to
  • A dedicated constitution of the company
  • A combination of both, a dedicated Constitution as well as the Corporation Act

Company Constitutions

To begin with, dedicated constitutions are not an indispensable necessity for each proprietary corporation. Nonetheless, these instruments are exceedingly advantageous and are thus, most highly endorsed for companies, particularly for those which lack the conventional share provisions.

These documents act as the rulebooks for leading a firm’s board members and stakeholders as regards its working. In the situation where one is a present or expectant stockholder, they will, in both conditions, be governed by these internal rules if they are contracting groups.

The personal capacity of a stakeholder remains unaffected by the constitution of a corporation. The cause: privileges rising out of such an instrument remain capable of being enforced in a court of law to the prejudice of the stakeholders solely in the powers they are bestowed with while in the role of a stakeholder[2].

Company stockholders and board members lack enforceable privileges. Therefore, mainstream shareholders cannot seek operation and enforcement of the provisions of a constitution the goal of which is to preserve the benefits of the marginal stakeholders.

Provisions of the Corporations Act

Replaceable rules act akin to a constitution by directing the activities and operations carried out by commercial corporations. The Corporations Act contains these rules, and they remain applicable mutatis mutandis, lest they be revised by the corporation.

The replaceable rules regulate matters pertaining to:

  1. The appointment and extent of powers of board members;
  2. The management of members’ meetings;
  3. Examination of account books;
  4. Unfamiliar rights connected with extraordinary batch of shares
  5. Allocating shares.

In the instance in which every member of a company consents to being governed by the above provisions, they function via the medium of a contract amongst the corporation and its constituent members, including the company secretary, and further associates.

Notably, violating the aforementioned procedures does not consequently violate the Corporations Act.

Nevertheless, there subsists a right between one investor and the remaining bondholders demanding obedience as regards either of the above-said rules that govern the corporation’s internal activities.

Main issue: Which of the above should SafeT1st opt for?

Based on the information provided to me, it is my personal recommendation that the company should adopt a constitution instead of the replaceable rules provided by the Legislature for the reasons stated below.

The Replaceable Rules take care of certain matters, although they may not provide the company with the whole shebang. Having a dedicated Constitution for your business entity allows personalization which in turn allows the establishment to conduct its business in a manner tailored to its necessities, especially pertaining to significant matters such as the system of conducting meetings, voting and fraction of consensus needed to arrive at certain decisions.

A dedicated constitution also grants the power on its directors to impose punitive actions against investors who perform an undesirable act, extending to allow the entity to even rid itself of any association with the said stock-holder.

Further, a Constitution lays down the rules pertaining to the conditions of any lending which may exist amidst the investors and their invested corporation, thus evading possible scenarios where the business interest might end up bankrupt, whilst simultaneously and spontaneously complying with the Income Tax Assessment Act’s Division 7A.[3]

The Corporations Act is peppered with the replaceable rules, stretching all the way from section 194 through 1072, thus implying that one would require probing through innumerable heaps of laws for discovering their relevant treasure. Comparatively, a Constitution is accumulated at a common place, and is accessible by everyone with serious ease.

While the Constitution Act is subject to the whims and fancies of the Australian government, a dedicated company constitution is subject to the control of the establishment only, and hence is untouched by any modifications that may be made by the Parliament.

Unfortunately, although the replaceable rules of the Corporations Act have the advantage of coming at a zero-dollar price, they have the rider of exposing the company’s decisions to scrutiny in a Court of Law, since they find their authority in a parliamentary legislation.[4]

To: Mr. Jo Delaney

From: Trainee

Subject Matter: Choice of type of Not for Profit (NFP) entity

Main Issue: Selection of A Type of Nfp Which Is Most Suitable to The Purposes of The Proposed Community Food Hub

The purpose of the proposed food hub is the provision of fresh produce to the senior population, which finds itself unable to obtain the same. The purpose is a benevolent one, and since their intent is one which involves giving back to the whole effort by investing all the proceeds gained from the said business, and in light of this reason, I believe that they should be a charity which qualifies as a Public Benevolent Institution.

Discussed below is the concept of what qualifies as a PBI, and what the community would require to become eligible to be called one.

Pre-Requisite conditions to be fulfilled

First and foremost, the effort must ensure that it remains in line with the Charities and Not-for-Profits commissions’ guidelines which qualify as a charitable entity as a PBI.

As the name suggests, the charity should be[5]

  1. Be of a public nature
  2. Have a benevolent purpose
  3. Be an institution

‘Public’

The requirement of the institution being a ‘Public’ one entails the necessity that such an institution must aid or give advantage to particular sections of people from the general public pool.

An establishment does not qualify as one which brings benefit to a particular class of people in the event of its picking of grant for assistance having its base on arbitrary, unreasonable characteristics, isolated from their needs.

Although the receipt of public funds is also a hint at the institution’s public nature, it can remain public even in the absence of the said funds, if the benefits it seeks to disburse are aimed at a section of the general public.

‘Benevolent’

There are two facets of this requisite:

  • Persons qualified for receipt of benefit from the institution’s objectives are required to have ‘benevolent need’
  • The institution’s goals should bring respite to the recipients’ above-said needs

For the first requirement, the said condition is said to prevail if the members of the group are in misery of such an impact, it has the ability to generate sensitivity and empathy in the community.[6]

Some examples of ‘benevolent need’ are as stated under:

  • People diagnosed with mental illness[7]
  • People in poverty living in developing countries overseas[8]
  • People who are unable to afford basic necessary legal representation[9]
  • Indigenous Australians[10]
  • Young boys living in poverty in a particular area[11]

For the second pre-requisite, the establishment shall have dedications stretching only to as far as facilitating fulfilment of the said compassionate needs of the disadvantaged sect and there shall remain no further unrelated goals.

However, the institution is permitted to adopt additional objectives which allow it to arrange for further relief. These include fund-raising to enable it to have monetary resources to deliver the said relief and publicity and promotion to make aware prospective recipients of its presence.

‘Institution’

In light of a lack of any uniform definition under law for the said term, it is given the meaning used in common parlance, although courts did recognize certain parameters which can be employed for determining if a body is an institution.

Although an institution is compulsorily bound to have its separate identity, it need not be incorporated or have a definite juridical identity.

References for Corporate Law Assignment

Websites

The Australian High Court archives. Retrieved from http://eresources.hcourt.gov.au/downloadPdf/2020/HCA/4

Not for Profit Law organization. Retrieved from https://www.nfplaw.org.au/acnc-interpretation-public-benevolent-institutions

The Australian Charities and Not-for-profits Commission. Retrieved from: https://www.acnc.gov.au/sites/default/files/document_2_2019q1r8_dwma_foi_request.pdf

McCollough Robertson Lawyers. Retrieved from https://www.mccullough.com.au/2017/02/07/organisation-meet-acnc-requirements-public-benevolent-institution/

Andreyev Lawyers. Retrieved from https://andreyev.com.au/2019/03/14/company-constitution/

The Australian Taxation Office. Retrieved from https://www.ato.gov.au/General/Aboriginal-and-Torres-Strait-Islander-people/Not-for-profit-organisations/Types-of-NFP-organisations/

The Australian Securities and Investments Commission. Retrieved from: https://asic.gov.au/for-business/small-business/starting-a-company/

The Commissioner’s Interpretation Statement (CIS), Australian Charities and Not-for-profits Commission. Retrieved from: file:///D:/Samarth/Academics/DigiVersal/Codes/commissioners_interpretation_statement_-_pbis.pdf

Books

Harris, P. & de Cogan, D. (2019). Studies in the history of Tax Law (Vol. 9), Bloomsbury Collections.

LIST OF CASES

Commissioner of Pay-roll Tax (Vic) v The Cairnmillar Institute (1990) 90 ATC 4752

Commissioner of Taxation v Hunger Project Australia [2014] FCAFC 69

Australian Council for Overseas Aid v Federal Commissioner of Taxation (1980) 49 FLR 27

Legal Aid Commission of Victoria v Commissioner of Pay-roll Tax (Vic) 92 ATC 2053

Maclean Shire Council v Nungera Co-operative Society Ltd (1995) LGERA 430, 433

Bodalla Aboriginal Housing Company Ltd v Eurobodalla Shire Council [2011] NSWLEC 146

Maughan v Federal Commissioner of Taxation (1942) 66 CLR 388

[1] Australian Securities and Investments Commission v King [2020] HCA 4

[2] Di Lorenzo Ceramics Pty Ltd v FCT (2007) 67 ATR 42

[3] Income Tax Assessment Act, 1936 (ITAA 1936)

[4] Administration Decisions (Judicial Review) Act 1977

[5] Commissioner’s Interpretation Statements: Public Benevolent Institutions (2016)

[6] Commissioner of Pay-roll Tax (Vic) v The Cairnmillar Institute (1990) 90 ATC 4752.

[7] see Commissioner of Pay-roll Tax (Vic) v The Cairnmillar Institute (1990) 90 ATC 4752

[8] see Commissioner of Taxation v Hunger Project Australia [2014] FCAFC 69; also see Australian Council for Overseas Aid v Federal Commissioner of Taxation (1980) 49 FLR 27

[9] see Legal Aid Commission of Victoria v Commissioner of Pay-roll Tax (Vic) 92 ATC 2053

[10] see Maclean Shire Council v Nungera Co-operative Society Ltd (1995) LGERA 430, 433; see also Bodalla Aboriginal Housing Company Ltd v Eurobodalla Shire Council [2011] NSWLEC 146

[11] see Maughan v Federal Commissioner of Taxation (1942) 66 CLR 388

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Corporations Law Assignment Help

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