Deck 19: Introduction to Companies and Incorporated Associations

Question 1

Which of the following statements is true?

A)A company can own property and sue and be sued in its own name.
B)A company is separate from its owners and employees.
C)A company is an association of persons formed to finance a business.
D)All of the above.

Answer 1

D

Question 2

A company differs from a sole trader and partnership in that it has a perpetual existence.

Answer 2

True

Question 3

What do the letters 'NL' after a company name mean?

A)Company members have no limit on their liability.
B)Liability of members is not limited.
C)Company members have no liability.
D)The number of members is not limited.

Answer 3

C

Question 4

Which of the following types of company are able to invite the public to invest in shares?

A)Large proprietary companies.
B)Unlisted and listed public companies.
C)Small proprietary companies.
D)All of the above.

Question 5

Limited liability is a key advantage of incorporation.

Question 6

With regards to its shareholders and employees,a company is a separate legal entity.

Question 7

The term: 'lifting the corporate veil' refers to giving rights and obligations to persons who would otherwise be protected by the separate legal entity principle.

Question 8

A large proprietary company is one that has:

A)gross assets of more than $12.5 million at the end of the financial year.
B)50 or more full-time employees at the end of the financial year.
C)a gross operating revenue of more than $25 million for the financial year.
D)any two of the above.

Question 9

Which of the following types of company are required to have the letters 'Ltd' after their name,either alone or with other letters?

A)No-liability companies.
B)Companies limited by shares.
C)Unlimited liability companies.
D)Companies limited by guarantee.

Question 10

Which of the following statements is NOT true?

A)ASIC initiates civil and criminal action for breaches of the Corporations Act 2001 (Cth).
B)ASIC Monitors and promotes market integrity.
C)ASIC monitors compliance with accounting standards.
D)ASIC investigates breaches of Australian law that relates to a company.

Question 11

Which of the following is an advantage of using a company as a business structure?

A)Shareholders have limited liability for the debts of the company.
B)Reporting requirements are minimal.
C)Directors have limited liability for the actions of the company.
D)Low establishment cost and ongoing fees.

Question 12

Which type of company is the most appropriate for a non-profit sporting association to form?

A)Public limited company.
B)Non-profit associations can't form corporations.
C)Company limited by guarantee.
D)No liability company.

Question 13

A company cannot be established with only one member.

Question 14

In relation to the decision in Industrial Equity Ltd v Blackburn [1977] HCA 59 which of the following statements is NOT correct?

A)Holding and subsidiary companies have separate legal obligations.
B)A holding company must pay tax on the dividends of a subsidiary.
C)A holding company can pay a dividend out of a subsidiary company's profits.
D)A holding company is a separate legal entity from a subsidiary.

Question 15

The case of Salomon v Salomon & Co Ltd [1897] AC 22 is authority for the principal that:

A)the debts of a company are the debts of its shareholders.
B)a company is a legal entity separate from its shareholders.
C)debenture holders take precedence over unsecured creditors.
D)companies must have more than one director.

Question 16

Which of the following is a disadvantage of using a company as a business structure?

A)The company can be sued.
B)Perpetual succession.
C)The establishment cost and ongoing fees.
D)The rate of tax payable by the company on its profits.

Question 17

Which type of company is the most appropriate for a husband and wife running a small business?

A)A company is not appropriate for a small family business.
B)Small proprietary company limited by shares.
C)Small public company limited by shares.
D)Public no liability company.

Question 18

In what circumstances will a court ignore the separate legal entity principle and lift the corporate veil?

A)If a company has been used to avoid a contractual obligation.
B)If a company has been used by a director to breach a fiduciary duty.
C)If a company has been used to commit a fraud.
D)All of the above.

Question 19

Large proprietary companies have to prepare and lodge audited accounts with ASIC bi-annually.

Question 20

The letters 'Ltd' after the name of a company is a warning to creditors that:

A)the liability of shareholders for the debts of the company is limited.
B)the company is limited by guarantee.
C)the shareholders have unlimited liability for the debts of the company.
D)the shareholders have no liability for the debts of the company.

Question 21

What is the term for the stated proportions into which the capital of a company is divided?

A)A share.
B)An interest.
C)An allotment.
D)An asset.

Question 22

As a separate legal entity a company can be a director of a subsidiary company.

Question 23

Which of the following statements accurately defines a 'debenture'?

A)The process by which a floating charge becomes a fixed charge.
B)Security for a loan attached to all of the assets of the company.
C)Security for a loan attached to specific assets such as land and buildings.
D)A document whereby a company acknowledges a debt.

Question 24

The decision in ASIC v Gallagher (1993)11 ACLC 286 was that non-executive directors of a company:

A)may rely on other directors providing them with important information.
B)have a duty to inform themselves so that they can make independent judgments.
C)must investigate all matters requiring their approval when they have been put upon enquiry.
D)all of the above.

Question 25

In which of the following situations will a director be found to have breached their duty to act in good faith?

A)The director has put themselves in a situation where their duties to the company and their personal duties conflict.
B)The director has agreed to vote in a certain way at future board meetings.
C)The director has done something which no reasonable director could regard as being in the interests of the company.
D)The director has exercised one of their powers primarily in order to gain some private advantage.

Question 26

In which of the following situations will a director be found to have breached their duty to exercise discretion?

A)The director has put themselves in a situation where their duties to the company and their personal duties conflict.
B)The director has agreed to vote in a certain way at future board meetings.
C)The director has done something which no reasonable director could regard as being in the interests of the company.
D)The director has exercised one of their powers primarily in order to gain some private advantage.

Question 27

In which of the following circumstances will a person be found NOT to be a director of a company?

A)If they have been validly appointed but do not act as director.
B)If they act as a director but have not been validly appointed.
C)If they have not been validly appointed but the other directors follow their instructions.
D)None of the above.

Question 28

The case of Morley v Statewide Tobacco Service Ltd (1992)ACLC 1233 is authority for the principle that:

A)a director will not be liable for a breach of s 588G if they were unable to attend company meetings.
B)a director's liability under s 588G is determined by what they ought to have known about the company's debts.
C)a director's liability under s 588G is determined by their actual knowledge of the company's debts.
D)a director will not be liable for a breach of s 588G if they acted in good faith.

Question 29

What is a prospectus?

Question 30

A disclosure document inviting the public to buy shares is called:

A)A prospectus.
B)An advertisement.
C)A public document.
D)A debenture.

Question 31

Explain what 'share capital' is.

Question 32

Which of the following accurately describes 'replaceable rules'?

A)The rules governing the content of a prospectus.
B)The internal management rules contained in the company's constitution.
C)Internal management rules contained in the Corporations Act 2001 (Cth).
D)The rules governing the employment of company managers.

Question 33

'Allotment' involves the business practice of:

A)transferring shares from one member to another.
B)inviting members of the public to subscribe for shares in a company.
C)allocating shares to members of the public who have applied for them.
D)none of the above.

Question 34

A company limited by shares may be either a public or proprietary company.

Question 35

In which of the following situations will a director have breached their duty to exercise their powers for a proper purpose?

A)The director has put themselves in a situation where their duties to the company and their personal duties conflict.
B)The director has agreed to vote in a certain way at future board meetings.
C)The director has done something which no reasonable director could regard as being in the interests of the company.
D)The director has exercised one of their powers primarily in order to gain some private advantage.

Question 36

A non-executive director is a manager of a company who does not receive any remuneration.

Question 37

Which of the following is NOT one of the statutory duties of a director under the Corporations Act 2001 (Cth)?

A)Act in good faith.
B)Avoid insolvent trading.
C)Disclose personal interests.
D)None of the above.

Question 38

Which of the following statements about a debenture holder is NOT true?

A)A debenture holder has the same rights as a shareholder of the company.
B)A debenture holder is a secured creditor of the company.
C)A debenture holder can sue the company for unpaid interest.
D)A debenture holder can take action to have the company wound up.

Question 39

What are the duties of company directors?

Question 40

Which of the following is NOT a requirement which must be satisfied before a company can buy back shares from its members?

A)The share capital reduction must not materially prejudice the company's ability to pay its creditors.
B)The share capital reduction must be approved by shareholders.
C)The share capital reduction must be approved by the court.
D)The share capital reduction must be fair and reasonable to the company's shareholders as a whole.

Question 41

Which of the following statements about unincorporated associations is NOT correct?

A)The unincorporated association cannot be sued.
B)The liability of members is limited to the amount of their subscription.
C)The committee members are not personally liable to third parties in contract.
D)The unincorporated association has no separate legal personality.

Question 42

The process of bringing a solvent company to an end is known as a creditor's voluntary winding up.

Question 43

Which of the following is NOT an advantage of incorporation for members of an association?

A)The association can enter into contracts.
B)The association is permitted to distribute its profits to members.
C)The association can sue and be sued in its own name.
D)The association has perpetual succession.

Question 44

Committee members owe a fiduciary duty their incorporated association.

Question 45

An association of less than 20 people formed for trading purposes will be regulated by:

A)the Associations Incorporation Act of the relevant state or territory.
B)the Partnership Act of the relevant state or territory.
C)the common law.
D)the Corporations Act 2001 (Cth).

Question 46

In what circumstances will a director be personally liable for the debts of the company?

Question 47

Directors are required by law to act in the best interests of the shareholders of the company.Do you think that directors should also have a duty to act in the best interests of employees,the community and/or the environment? Explain your answer.

Question 48

A director in breach of s 588G may be personally liable for the company's debts.

Question 49

An incorporated association will cease to exist if members do not renew their membership.

Question 50

The advantage of putting a company into administration is that it:

A)results in a better return for creditors.
B)results in a better return for members on a winding up.
C)provides a defence against an action for breach of s 588G.
D)all of the above.

Question 51

In the event of an ASIC investigation of a corporation's affairs,the corporation may be required to produce its book for inspection.

Question 52

Committee members of an unincorporated association owe a fiduciary duty to the association.

Question 53

Which of the following is NOT one of the options for dealing with a company in financial difficulties?

A)Bankruptcy.
B)Administration.
C)Liquidation.
D)Receivership.