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INCORPORATION OF A COMPANY - Coggle Diagram
INCORPORATION OF A
COMPANY
Procedures
MS 12 pdf note
the applicant must make a name search to ensure that the proposedname is available
The applicant must also fill in the documents for incorporation
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
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
Promoters and Their Duties
A promoter is the person who initiates the company's incorporation
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
can be a natural person or a company
but
an agent who
carries out the process of incorporation is not considered a promoter
important to determine - b'cause they have fiduciary duties to the company
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
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
has an obligation to act in good faith for the benefit
should not have any conflict of interest with the company
has the duty to make full disclosure of his interest in any transaction with the company
Remedies for Breach
Rescission
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.
Damages
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.
Claim for Secret Profit
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.
Pre-incorporation Contract
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
Effects of In Corporation
Corporate Body
based upon the doctrine of juristic person where it's established that a company - a non-human entity - has rights as a legal person
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.
Separate Legal Entity
Case : Lee v Lee's Air Farming Ltd [1960]
By having the status of a corporate body, a company becomes a legal person and has a separate legal entity, distinct from its incorporators
Perpetual Succession
having the rights to continue in existence until it is removed from the register
a company does not die and can exist until it is dissolved or removed from the register
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
Power to Acquire and Sell Property
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
Any property acquired by the company belongs to the company
Case : Macaura v Northern Assurance Co Ltd (1925)
Right to Use and be Sued
the company is a legal person, it can sue and be sued in its own name
Members of the company cannot take any legal action on behalf of the company
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
Limited Liabilities of members
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]