PowerPoint Presentation
ACC204
Corporations Law
Lesson 3
Module 5-Companies, outsiders and
corporations liability
Module 5
Companies,
outsiders and
corporate liability
Module overview
1. How companies exercise powe
2. Corporate liability in contract
3. An agent’s substantive authority
4. Indoor management rule
5. ss 128 and 129 assumptions
6. Corporate liability in tort and crime
How companies
exercise powe
• Organic theory:
– The company acts of and by itself.
– The company acts directly.
– The organs of the company are:
• the members’ general meeting
• the board of directors
• the managing directo
• the company secretary
How companies
exercise powe
• Agency theory:
– The company is a principal
– The company has agents to act on its behalf
– The company acts indirectly
How companies
exercise powe
• Comparing the organic theory and agency theory of
the company:
How companies
exercise powe
• If companies, as an artificial legal creation, can only
act through the actions of people, then:
– What actions is the company liable for?
– Whose actions will bind the company?
Is a contract binding?
• Authority to bind the company under direct and
indirect contracting:
Is a contract binding?
• A contract entered directly is binding by and against
the company if:
– it is in writing and is signed in accordance with the
Corporations Act by officers of the company who
have formal authority, and
Is a contract binding?
• A contract entered directly is binding by and against
the company if:
– it is signed by company officers or agents who
have the substantive authority to enter contracts
as the company itself:
• members’ general meeting
• board of directors, managing director, company
secretary
Is a contract binding?
• Entering a contract directly:
Is a contract binding?
• A contract entered indirectly by an agent of the
company is binding by and against the company if:
– the agent had the actual authority to bind the
company, o
– the agent had the apparent authority to bind the
company.
Is a contract binding?
• Entering a contract indirectly:
Substantive authority
of an agent
• An agent’s authority to sign a contract on behalf of
the company may arise in several ways.
• Express actual authority:
– The company has given the agent oral or written
express authority to sign a particular contract on
the company’s behalf.
Substantive authority
of an agent
• Implied actual authority:
– The company has implied the agent has authority
to sign a contract on behalf of the company by:
–company position — the position of the
agent in the company (e.g. managing
director) implies they have the authority to
sign the contract
Substantive authority
of an agent
• Implied actual authority:
– The company has implied the agent has authority
to sign a contract on behalf of the company by:
–acquiescence — the company allows a
person who has not been appointed as an
officer or agent to act in that capacity over a
period of time and communicates its
consent in some way
Substantive authority
of an agent
• Apparent authority:
– The company has represented that the agent has
authority, even though the company has not
necessarily given express or implied actual
authority.
1. A representation is made that the agent has
authority (e.g. use of corporate letterhead).
2. The representation is made by a person with
actual authority.
Substantive authority
of an agent
• Apparent authority:
– The company has represented that the agent has
authority, even though the company has not
necessarily given express or implied actual
authority.
3. The third party relies on that representation.
4. The company has the capacity to enter the
contract.
Indoor management rule
• Section 125 of the Corporations Act provides that a
company that has
eached its constitution still has
legal capacity to act.
• In common law, the indoor management rule
provides that third parties can assume the
company’s internal procedures have been properly
followed, as long as they have no reason to suspect
otherwise.
Indoor management rule
• Section XXXXXXXXXXof the Corporations Act reflects the
indoor management rule.
• Exceptions to the indoor management rule can arise
if:
– the outside party has actual knowledge of an
i
egularity
– the outside party fails to make the enquiries that
would usually be made by someone in their
position
Indoor management rule
• Exceptions to the indoor management rule can arise
if:
– a reasonable person in the outside party’s
position would have been put on inquiry about a
possible i
egularity and be prompted to
adequately investigate.
• Even in cases of fraud or forgery, the outsider’s
assumptions are still valid.
Statutory assumptions
• Section 128 of the Corporations Act entitles a person
dealing with:
– a company
– an agent of a company
– someone having acquired property from or
claiming to have acquired property from a
company
Statutory assumptions
• To make a set of assumptions, described in s 129 of
the Act
• Provided the person does not know or suspect the
assumption is wrong.
Statutory assumptions
• Statutory assumptions by outsiders in dealing with
the company:
Statutory assumptions
• Section 129(1) — the company constitution and
eplaceable rules have been complied with
• Section 129(2) — a person listed as a director or
company secretary on ASIC’s records has been duly
appointed and has authority to exercise the powers
of their position
• Section 129(3) — a person held out by the company
to be an agent or officer of the company has been
duly appointed and has authority to exercise the
powers of their position
Statutory assumptions
• Section 129(4) — officers and agents properly
perform their duties to the company
• Section 129(5) — a document that appears to have
een signed in accordance with s XXXXXXXXXXhas been
duly executed
• Section 129(6) — a document that appears to have
een fixed with the company seal in accordance with
s XXXXXXXXXXand properly witness has been duly
executed
Statutory assumptions
• Section 129(7) — an officer or agent with authority
to issue a document (or certified copy) also has
authority to wa
ant the document is genuine
• Section 129(8) — the statutory assumptions can be
made simultaneously
Liability in tort and crime
• Company has primary liability for a tort or crime that
the company itself has committed.
• Lennard’s Ca
ying Co Ltd v Asiatic Petroleum Co Ltd
[1915] AC 705:
Liability in tort and crime
• Company has vicarious liability for:
– acts committed by employees in the scope of their
employment
– acts of the company’s agents.
Liability in tort and crime
• A tort:
– a harmful act
– other than a
each of contract
– the victim has the right to sue for compensation
– e.g. trespass, negligence, defamation
• In a corporate group, the court may lift the corporate
veil to make a parent company liable for a
subsidiary’s torts.
Liability in tort and crime
• A crime:
– a harmful act or omission
– leads to the state commencing criminal
proceedings and seeking to have the offender
punished.
• Companies are liable to crime in the same way as
individuals.
• Company guilty of a crime can be fined or
deregistered.
Liability in tort and crime
• Most likely to arise in:
–
eaches of OHS regulations
–
eaches of human rights
– damage of the natural environment.
Liability in tort and crime
• Strict liability exists for offences where fault (or
intent) does not have to proved.
• The company can use the defence of a reasonable
‘mistake of fact’ on the part of its agent, employee of
officer.
• Absolute liability exists for a limited range of
offences, where fault (intent) is not relevant.
Liability in tort and crime
• Strict offence examples:
NEXT
Module 6
Membership, members’
powers and dividends
Slide Number 1
Module 5��Companies, �outsiders and �corporate liability��
Module overview
How companies �exercise powe
How companies �exercise powe
How companies�exercise powe
How companies �exercise powe
Is a contract binding?
Is a contract binding?
Is a contract binding?
Is a contract binding?
Is a contract binding?
Is a contract binding?
Substantive authority�of an agent
Substantive authority �of an agent
Substantive authority �of an agent
Substantive authority�of an agent
Substantive authority�of an agent
Indoor management rule
Indoor management rule
Indoor management rule
Statutory assumptions
Statutory assumptions
Statutory assumptions
Statutory assumptions
Statutory assumptions
Statutory assumptions
Liability in tort and crime
Liability in tort and crime
Liability in tort and crime
Liability in tort and crime
Liability in tort and crime
Liability in tort and crime
Liability in tort and crime
NEXT
Slide Number 36
PowerPoint Presentation
ACC204
Corporations Law
Lesson / week 4
Module 6- Membership.
Module 6
Membership,
members’ powers
and dividends
Module overview
1. Rules, procedures and rights of membership
2. Members’ meetings
3. Dividends
Members as owners
• The members of a company are its owners or
custodians.
• In a company limited by shares, members are
shareholders.
• A share is chose in action:
– A set of legal rights
– More limited than conventional ownership rights
• Members are not entitled to interfere in
management decisions.
Members as owners
• Members’ rights:
Becoming a membe
• Any individual or entity can become a member:
– upon registration, if specified in the application for
egistration
– by applying for a being allotted shares
– receiving a transfer of shares from another
membe
– exercising options or wa
ants over shares
– receiving shares by transmission upon the death,
ankruptcy of incapacity of an existing membe
Register of members
• Companies must maintain a register of members:
– Name and address of each membe
– The date the name was entered on the registe
– Number of shares held
– Class of shares held
– Share certificate numbers
– Amount outstanding on the shares
Register of members
• Sample register of members:
Register of members
• A company or person has the right to apply to the
court to have e
ors in a share register co
ected:
– amount unpaid on shares
– amount of shares owned
– whether shares have been transfe
ed
• The court has
oad powers to order a rectification
of the register of members.
Share certificate
• A share certificate is prima facie evidence of title to a
share and must show:
– the name of the company
– the class of shares
– the amount unpaid on the shares.
• A company is liable at common law for any loss
arising from an e
or in a share certificate.
Share certificate
• Sample share certificate:
Transfe
ing shares
• Shares are relatively easily transfe
ed from a
shareholder to another person.
• The company constitution of an unlisted company
may place restrictions on share transfers.