Mister: Corporation and Internal Governance Rules Essay

Submitted By weiyao0119
Words: 1947
Pages: 8

Corporations Law
Lecture 3—Managing Companies with Share Capital

1. Members

Membership rights
Common law rights
• enforce statutory contract
• appoint directors
• dividend out of profits
• attend members’ meetings
• vote at members’ meeting
• receive information from the company

Membership rights
Statutory rights

wind up the company (s 461) enforce compliance with Corporations Act (s 1324) call members’ meeting (s 249D) copy of company’s annual financial report (s 314) inspect the company’s registers free of charge (s 173(2)) approve executive remuneration (s 200B) or related party benefits (Ch 2E)
• remove directors of public companies (s 203D)
• oppression action (s 232)
• statutory derivative action (ss 236, 237)

• A person can become a member by:
– Becoming a member on registration (s120)
– subscribing for new shares after registration,
– or acquiring already issued shares from another person • A person ceases to be a member by transferring their shares, or having them cancelled • A company only needs 1 member to register: s114 Classes of shares
• Shares can be created with different rights attaching
• Typically classes of shares have differing:
– entitlement to dividends
– priority in relation to payment of dividends
– voting rights
– priority in repayment of capital on a winding up – right to share in surplus assets on a winding up 2. Corporate Governance

Corporate governance
• How are companies directed and managed? – The company is run by 2 organs,
– the board
– the general meeting.
– Each organ has power to make particular decisions for the company

• Referred to as ORGANIC PRINCIPLE

Corporate governance
• In all single director/shareholder companies and many smaller companies, the owners and managers are the same people and (except where relationships break down) do not have divergent interests Corporate governance
• In larger companies and relationship breakdowns, divergence is more likely
• Corporate governance rules are rules to minimise and manage that divergence
• Many investors require companies to adopt corporate governance practices that promote accountability on the part of directors and executives

Corporate governance
• Listed companies are now subject to ASX
“Principles of Good Corp Governance”.
• 10 principles, including:
– Recognise and publish the roles of the board and management
– Have a board of effective composition
– Safeguard financial information
– Respect the rights of shareholders

3. Internal Governance

Internal governance
• Before July 1998: Memorandum of association and articles of associations
• After July 1998:
– Replaceable rules ss140, 141
– Or constitution
– Or a combination s134

Internal governance rules
• Replaceable rules:
– Companies may elect to rely on some or all of the replaceable rules in the Corporations Act

• Listed in s141
• Apply unless displaced or modified by a constitution – s135
• Not all of the replaceable rules are suitable for all types of companies
• Some companies may wish to do things not provided for in the replaceable rules eg issue partly paid shares

Internal governance
• S135 replaceable rules do not apply to single director companies but Act has other sections e.g.
– s198E deals with single director companies – powers of directors;
– 201F appointment of other directors
– 202C remuneration of sole director

• alternative to relying on the replaceable rules, a company can adopt a constitution
– Can be done when the company is registered, s117
– or later s135

• Constitution contains customised internal governance rules for that particular company
• Adopting, amending or repealing a constitution after registration requires a special resolution of members sec 136
• Listed companies must have a constitution that is consistent with the Listing Rules…