Legl2002 Law Of Business Organisations Assessment Answers

Company Objects

This Company’s objects are unlimited. To realize the objects of the company, shares shall be allotted to members so as to help in raising the capital required for the day to day running of the business of the company.

Income generated by the Company

The company's income and any property shall only be used in the business of the company and in promoting or facilitating in the company's promotion. This company may, however, effect the distribution, payment or a transfer of the whole or part of the income to shareholders through the payment of bonuses or dividends except where the prevailing circumstances do not permit the company to do so.

Members Liability

Members of Diamond Property Limited have limited liability that shall be pegged on the capital contribution of every member, who shall contribute to the capital of the company a sum of $500 per shareholder.

Accounts of the Company

True and updated accounts of income and expenditure of the company shall be kept. The matters for every expense shall be captured in the accounts, detailing the description and date of such expense if any. The company accounts shall be periodically subjected to auditing by a qualified and practicing auditor to ascertain whether they comply with international accounting and money reporting standards.

Membership

The promoters of this company shall become members automatically upon the successful incorporation thereof. Additionally, other members shall include such persons as the board shall determine from time to time through allotment of the Company shares. 

General Meetings

The company's annual general meeting shall be convened in line the law as to meetings. The notice of the intended meeting shall be communicated to members at least 28 days before the date of the scheduled general meeting unless a shorter notice is allowed under the subsidiary rules as to conduct of Annual General Meetings.

The Company’s Board

The Board of Management of this company shall at all times consist of six members that are elected by members at an Annual General Meeting to serve for a term of three years that is subject to renewal or reelection. The board members shall elect among themselves, the Chairperson, the secretary, and a treasurer to assist it in the day to day running of the activities and business of the company.

Company Seal

The company shall have a common seal that shall be used to execute all contracts that it enters into unless the directors decide to the contrary.

Dissolution or Winding Up of the Company

In any circumstance, the company is subject to dissolution or winding up proceedings, and upon satisfaction of all its debts, liabilities and obligations, the surplus shall be open for sharing and distribution among the shareholders on proportions or ratio of their capital contributions or shares held by them at that particular time.

The Replaceable Rules

Rule 1

In accordance with the Corporations Act at section 198A, the management of the company shall be done by the directors or by other persons with the authority or direction of the directors. All the functions of the directors can be delegated except for those that either the Act or the company constitution requires the directors to undertake personally. Some of the director functions include issuance of shares, debentures, and borrowing of any capital for and on behalf of the company.

Rule 2

The Corporations Act 2001 at section 205 E, director decisions that have a direct impact on the members with a share capital shall be subjected to ratification by all members in a general meeting and at such meeting;

(a) each member shall only have a single vote and such voting shall be by acclamation; and

(b) if the voting is through a poll, each member shall be eligible to have a single vote that is a representation of the number of shares held by them.

Rule 3

Besides, section 254 W (2) provides that the directors can exercise their discretion as regards the payment of dividends so long as the company is a going concern.

Capital Maintenance Doctrine

The capital maintenance doctrine was developed in the 19^th century in the United Kingdom in Trevor v Whitworth[2]Mainly to offer protection to creditors in the corporate world. The effect of the doctrine is a restriction on the capital raised in corporations such that corporations are restricted and prohibited from distributing the share capital to shareholders but instead maintain the said capital for the servicing of credits advanced to the corporation. Corporations are therefore strictly require to impose and observe the doctrine since the creditors of a company mostly put much reliance on the capital of a company from which they get paid the advances they make to a company from time to time.

In  Re-Exchange Banking Company,[3] It was observed by the court that before making any advances to the company, creditors relies on the corporation's assets from which they expect to receive their payments. The said creditors put faith that the company would be a going concern even in the foreseeable future and that the company will make use of its assets in the day to day carrying on business activity and that the said assets shall not, in any case, be returned to the shareholders at any given time when the advances made are still owing.

Corporations need therefore to endeavor in maintaining the doctrine such that they desist from the distribution of capital to shareholders when loans are still owing to creditors. The capital should be maintained and not employed even in the purchase of shares either in the same company or any other different company so long the credits are still owed. However, this restrictive doctrine does not in certain circumstances religiously applied in privately owned companies. Private corporations are allowed a little latitude and are free to use their capital even in the purchase of shares as it is a belief that the risk associated with privately owned corporations is negligible.[4]

This doctrine ensures that in all transactions that a company engages in, priority is given to creditors. It also ensures that the capital base of a corporation is not fully depleted through unnecessary purchases or shares redemption. The main exception to the capital maintenance doctrine is that private companies, however, have the right to fund the purchase of shares with the use of their capital and to seek financial aid to purchase shares.

In addition to the main exception on privately owned corporations, there are additional exceptions to general application. For instance, corporations can be permitted to seek an order from the court so as to effect a capital reduction. Such application has to state the reasons for the intended reduction, and such reduction and application has to be sanctioned by existing legal provisions. Additionally, if the Corporations Act under which the company is incorporated does not prohibit companies from redeeming share, then such company is free to proceed with the redemption.[5]

In certain rare circumstances, a company may be allowed to purchase its shares by the companies legislation in force for the time being, in such circumstances, therefore, the strict observance of the doctrine shall be waived. The doctrine would however not apply during liquidation or winding up of a company since members would be entitled to payment especially after the company has met all its obligations and paid all the creditors. The surplus is open to sharing among the shareholders.[6]

Bibliography

Sealy L, Worthington S. Sealy & Worthington's Cases and Materials on Company Law (Oxford   University Press; 2013)

Redmond, P. (2000). Companies and securities law: commentary and materials. Sydney, LBC Information Services

Cheffins R. Company law: theory, structure, and operation (Oxford: Clarendon Press; 1997)

Tomasic R, Bottomley S and McQueen R. Corporations Law in Australia (Federation Press; 2002)

Johnston T, Jager M, and Taylor R., The Law, and Practice of Company Accounting in Australia   (Butterworths; 1977)  

Ciro, A., and Symes., C. (2008) Corporations law in principle. Pyrmont, N.S.W., Thomson Reuters (Professional) Australia