INCORPORATION OF A
COMPANY

Procedures MS 12 pdf note

Promoters and Their Duties

Remedies for Breach

Pre-incorporation Contract

Effects of In Corporation

  1. the applicant must make a name search to ensure that the proposedname is available
  1. The applicant must also fill in the documents for incorporation
  1. Once the Registrar is satisfied that all information provided - he will issue a notice of approval and registration. A certificate of incorporation will be issued by the CCM upon request, together with the prescribed fee
  1. A private company can commence business immediately upon the issuance of the notice of registration but have to lodge a statutory declaration of compliance on matters prescribed in Section 190(1) of CA 2016 before it can commence business
  1. A promoter is the person who initiates the company's incorporation
  1. Twycross v Grant (1877)
    promoter is defined as a person who undertakes to form a company with reference to a given project and who takes the necessary steps to accomplish this purpose
  1. can be a natural person or a company but an agent who carries out the process of incorporation is not considered a promoter
  1. important to determine - b'cause they have fiduciary duties to the company
  1. fiduciary duty to the company - case : Re Cape Breton Co (1885)
    held that the duty as a promoter may arise even at the time he purchased a property with the intention of selling it to the company in which he is incorporating
  1. The role not necessarily ends after the company has been incorporated. Case : Court in Erlanger v New Sombrero Phosphate Co (1878)
    held that a promoter can continue to be a promoter even after the company has been incorporated
  1. has an obligation to act in good faith for the benefit
  1. should not have any conflict of interest with the company
  1. has the duty to make full disclosure of his interest in any transaction with the company

Rescission

Damages

Claim for Secret Profit

the right of the company to rescind the contract is conditional upon the ability to restore parties of the contract to its original position

Lagunas Nitrate Co Ltd v Lagunas Syndicate (1899)


the court held that it could not order rescission of the contract as the company could not restore the land to its original position to the promoter.

company may also claim for damages if the promoter breached his fiduciary duties

Cases : Re Leeds and Handley Theatres of Variety (1902)


Court held that the company can claim for damages from the promoters as rescission of the contract is not possible because the property has been sold to a third party for a valuable consideration.

Case : Tracy v Mandaley (1953)


the court held that if the company cannot rescind the contract or claim the profit made by the promoters due to the breach of duciary duties, it can claim for damages if it has suffered loss.

Case : Gluckstein v Barnes (1900)


the court held that the company is entitled to claim for the secret profit gained by the promoters due to breach of the promoters' fiduciary duty of non-disclosure.

Define :promoters might enter into contract on behalf of the company in the due process of incorporation and before incorporation

enables the promoter to take preparatory steps to secure the company's interest prior to its incorporation

Under the common law, pre-incorporation contract is considered void

Case: Kelner v Baxter (1866)


the court held that a contract entered into by unformed company cannot be adopted or ratified by the company after incorporation

but a new contract must be made after its incorporation in the same term as the old contract to enable the parties to be bound by the contract

S65(1)

allows pre-incorporation contract to be entered

S65(2)

that pre-incorporation contract may be ratified after the company being incorporated and upon ratification, the company shall be bound by the contract as if the company had been in existence at the date the contract was entered into by the promoter

can be expressly ratified through a board of directors or general meeting resolution

Corporate Body

Separate Legal Entity

Perpetual Succession

Power to Acquire and Sell Property

Right to Use and be Sued

Limited Liabilities of members

  1. based upon the doctrine of juristic person where it's established that a company - a non-human entity - has rights as a legal person
  1. A legal person is not only confined to a human being ("A person is any being whom the law regard as capable of right or duties")

S20

upon incorporation, a company is a corporate body. This means that upon incorporation, a company becomes a legal person, which entails rights and liabilities as prescribed under the Act.

Case : Lee v Lee's Air Farming Ltd [1960]

  1. By having the status of a corporate body, a company becomes a legal person and has a separate legal entity, distinct from its incorporators
  1. having the rights to continue in existence until it is removed from the register
  1. a company does not die and can exist until it is dissolved or removed from the register
  1. A company is distinct from its incorporators and does not die even if all its members and directors have died or no longer in existence

Case : Re Noel Tedman Holdings Pty Ltd (1967)

The court has to interfere in this case and it held that the personal representative of the deceased shall have the right to appoint directors of the company so that these directors could allow the transfer of the shares to the child

  1. Even if a person is the beneficial owner of all the shares in the company, he does not have any legal or equitable interest in the company's property
  1. Any property acquired by the company belongs to the company

Case : Macaura v Northern Assurance Co Ltd (1925)

  1. the company is a legal person, it can sue and be sued in its own name
  1. Members of the company cannot take any legal action on behalf of the company
  1. AKA "proper plaintiff rule"

Case : Foss v Harbottle (1843)

The court held that since the injury complained was an injury to the company and not to the members, therefore, the members could not take action. Only the company had the right to sue

S192(1)

provides that a member shall not be liable for an obligation of the company just because he is a member of the company

S10(1)(a)&(b)

that liabilities of members in a limited company is limited either by shares or by guarantee.

Case : Salomon v Salomon & Co Ltd [1897]