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Flashcards in Lecture 1- Introducing companies Deck (51)
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How many companies are there in Australia?

2 million


How are companies created?

Through a process of registration under statue


How are companies legal persons?

=artificial legal persons created by incorporation
-they have rights like humans, they are and antity


What is a legal person?

-can be a human or a company


What is the legal attribute of separate personality?

-companies have separate legal rights from the people who created them


What is the purpose of companies?

-making money, people pool money into one fund and make lots of money, you couldn't do it on your own
eg: building a railway


What are the two sides of companies that the government has to balance?

-protecting people who deal with companies vs making money


Why does making money side win sometimes?

-governments are scared the economy will be hurt if companies aren't protected


Why are small companies sort of an aberration?

-not the purpose of incorporation
-but you can't set a limit on how small or big a company has to be to be able to come into existence; thus you can even have a company that has one shareholder, one director and one dollar in shared capital


How many companies control most of the company money in Australia?

-the ones listed on the Australian Securities Exchange (there are other stock exchanges eg. ASX, Chi-X etc.)


What are the majority of companies like? (size-wise)

-small businesses often run by one person


What is the major reason for forming a company?

- it creates a legal barrier between the people creating the company and creditors
- you don't have to be liable for company's debts


What is a member of a company?

-A member of a company must be a person (e.g. John Citizen), a body corporate (e.g. XYZ Company Pty Ltd), or a body politic (e.g. State of Queensland). A member is an entity that can own property, sue or be sued.
-commonly called shareholders


What is investing money in a company called?

-subscribing for shares
-can do it by filling out a prospectus, or buying someone else's shares via a stockbroker etc.


What do companies have to have (members)?

-have one or more members who have invested money by subscribing for shares or acquiring shares from an existing shareholder= called equity capital


What is equity capital?

-the capital generated by selling shares


What is debt capital?

- all the rest of money a company has (except for the equity capital)
-if company is winding up this is the money that has to be paid as opposed to equity that doesn't


Who are the companies' creditors?

-employees, suppliers, lenders = debt capital


Do you have a contract with the company if you are a shareholder?

-yes, you don't have to have direct contact with the company to be a shareholder.
- the Corp Act 2001 says there is a contract between the shareholders and the company


Who runs the company, day to day?

-depends on the size of the company, if very small than the person who owns it= director, if larger you have more people so they elect a board of directors who make decisions, if even larger then the board of directors makes the bog picture decisions and delegates responsibilities to senior management


What are the two decision making organs in a company?

1. board of directors and senior management
2. the company in general meeting (all shareholders gathering and voting together)


Do directors have to be members of the company?



What issues have the members the right to vote on?

-on some issues but usually not in general management decisions


What is the doctrine of separate legal entity?

-companies in a business sense can do everything that a human can do.
-that is why you want a company; when in debt they are the liquidated and what is left is distributed to the creditors but the people behind it are safe= so the company puts a barrier between the human and the creditors


Who are natural legal persons?



Who are artificial legal persons?

-companies (have extra rights= issuing shares but cannot marry and have a passport etc.)


What are the consequences of companies being a separate legal personality?

-companies can live forever= perpetual succession
-can contract with controllers and others
-separate taxpayer
-members have limited liability
-can incur obligations and hold rights and sue and be sued in its own name


What are the facts of the Salomon v Salomon (1897)?

-Salomon is a successful shoe manufacturer, decides to incorporate, he transferres his shoe business and in return gets cash and 20 001 shares, 6 shares go to Salomon's family. (you had to have 7 shareholders back then), he also gets debenture(security for a loan).
-then business gets into financial difficulty and Salomon is a secured creditor so the ISSUE:- was Mr Salomon entitled to priority under the debenture over unsecured creditors of the company
-depends on whether the company and its controller are separate legal entities
= court says YES so he is entitled


What is the hierarchy of creditors?

-unsecured (employees)
-then the shareholders


What are the facts and issue of the Lee v Lee's Air Farming Ltd case?

-Mr Lee has a farming company and is it controller but also an employee. He has injury insurance policy for employees. He incurs and injury and wants the insurance to pay for health costs but they decline.
-Issue: could Mr Lee be both the controller of a company and its employee?= YES so insurer has to pay!
-same human being can have several roles in a company