Deck 3: Companies and Incorporation

Question 1

Under s 45A (2) of the Corporations Act 2001 (Cth), a proprietary company is a small proprietary company if it satisfies at least two of the following criteria:
- Consolidated operating revenue is less than $25 million;
- Consolidated gross assets is less than $50 million; and
- Less than 30 employees.

Answer 1

False

Question 2

Both public and proprietary companies must have at least one member.

Answer 2

True

Question 3

A corporate group exists where one company controls one or more other companies; that is, where the companies are in a holding company - subsidiary company relationship.

Answer 3

True

Question 4

The recognition that a company is a separate legal entity distinct from its shareholders is often referred to as the 'veil of incorporation'.

Question 5

In accordance with s 124 of the Corporations Act, a company has the legal capacity and powers of an individual in addition to other powers such as the power to issue shares and debentures.

Question 6

The corporate veil separates the owners and operators of a company from the company. It prevents the law from saying that the company's obligations, liabilities, rights or property are the obligations, liabilities, rights or property of the owners or operators.

Question 7

Which of the following is NOT a public company?

A) Law Publications Ltd - a publisher of legal text books.
B) Cancer Support - a charity supporting victims of breast cancer which modified its name under section 150 of the Corporations Act 2001 (Cth).
C) Big Mine NL - a large coal miner located in Queensland.
D) Junior Soccer Australia Ltd - a company limited by guarantee which runs an under-18 soccer league in Australia.
E) Netball Essendon Inc. - one of the largest netball clubs in Victoria located in Melbourne.

Question 8

Which of the following is incorrect?

A) Public companies must list on a stock exchange.
B) Large proprietary companies are required to prepare annual financial reports.
C) Proprietary companies must not engage in any activity that would require disclosure to investors under Chapter 6D except for the two exceptions listed in section 113(3) of the Corporations Act 2001 (Cth).
D) Both public and proprietary companies must have at least one member.
E) No liability companies MUST have a constitution.

Question 9

Polly Parrot registers a company called Lorikeet Pty Ltd. Polly is the sole shareholder and sole director of Lorikeet Pty Ltd. Lorikeet Pty Ltd does not have a secretary or any other officers or employees and has no assets other than $500 in a bank account. It has no business operations. Which of the following is correct?

A) Polly Parrot will be exposed to unlimited liability.
B) Lorikeet Pty Ltd has violated the Corporations Act (Cth) 2001 as all companies need at least two directors.
C) Lorikeet Pty Ltd is a "small proprietary company" under s 45A(2) of the Corporations Act (Cth) 2001.
D) Lorikeet Pty Ltd could raise capital by offering shares or debentures to a large number of people by complying with the fundraising provisions in Ch 6D of the Corporations Act (Cth) 2001.
E) Both A and C are correct.

Question 10

Verge Ltd has issued the following shares which have equal voting rights:
Class A: 100 shares
Class B: 100 shares
Class C: 100 shares
Class D: 100 shares
What type of company is Verge Ltd?

A) It is unknown as the provisions of the constitution have not been revealed.
B) A public company limited by guarantee.
C) A listed no liability company.
D) A proprietary company.
E) A public company limited by shares.
F) An incorporated association.

Question 11

The Corporations Act 2001 (Cth) provides that a no liability company must:

A) Have share capital.
B) Have a constitution which provides its sole objects are mining purposes.
C) Have no contractual right under its constitution to recover calls made on its shares from a shareholder who fails to pay them.
D) Both A and B.
E) All of A, B and C.

Question 12

What is a shelf company?

A) A company that already exists and has been registered with ASIC.
B) A company that can operate only for mining purposes.
C) A company that controls one or more other companies.
D) A subsidiary company that is part of a group of companies.

Question 13

Which of the following circumstances does NOT allow the court to lift the corporate veil under the Corporations Act?

A) Directors allow the company to trade while insolvent
B) Directors attempt to defeat employees' rights to entitlements when the company is in financial difficulty
C) Directors fail to prevent uncommercial transactions in relation to insolvency
D) Directors preside over a company that becomes insolvent and cannot pay the debts that it had owing at the time that it became insolvent

Question 14

Joanne is a shareholder of Queensland Coal Ltd. She purchased 100 shares worth $10 each. Joanne's best friend Natalie owns $1000 in debentures issued by Queensland Coal Ltd. Which of the following statements is NOT true?

A) Because it is a limited liability company as opposed to a public company, Joanne's shares can never be traded on a stock exchange.
B) If Queensland Coal becomes insolvent, Natalie's chance of getting her money back is better than that of Joanne.
C) Both Natalie and Joanne have provided part of the capital of Queensland Coal Ltd.
D) Joanne's liability is limited to the amount (if any) unpaid on her shares.
E) Joanne is a member of Queensland Coal Ltd.

Question 15

How is the Corporations Act 2001 (Cth) different to the schemes which preceded it?

Question 16

What is the significance of NSW v Commonwealth (1990) 169 CLR 482

Question 17

What is a 'company'? What is a 'corporation'? What is the difference between a 'company' and a 'corporation'?

Question 18

Is it possible to have a one-person company?

Question 19

Explain the differences between (a) a company limited by shares, (b) a company limited by guarantee, (c) an unlimited liability company, and (d) a no liability company.

Question 20

Explain the differences between a proprietary company and a public company.

Question 21

What does Listed Company mean?

Question 22

Can a company change from one type to another?

Question 23

How are companies registered?

Question 24

How does a company get its name?

Question 25

Explain the concept of 'separate legal entity'.

Question 26

In what ways is a corporation treated by the law as a person? What can a company do which a person cannot? What can person a do which a company cannot?

Question 27

What is the significance of Salomon's case to the concept of the corporate veil?

Question 28

What does the phrase 'lift the corporate veil' mean? In what circumstances have courts been willing to lift the corporate veil? The legislature?

Question 29

In what circumstances did the Court lift the corporate veil in Smith, Stone & Knight v Birmingham Corporation?