membership, members powers and dividends, Cheat Sheet of Law

Download membership, members powers and dividends and more Cheat Sheet Law in PDF only on Docsity! WEEK – 8 MEMBERSHIP, MEMBERS POWERS AND DIVIDENDS The members of a company and traditionally considered to be its owners. Owning a share of a company is quite different to owing most assets. A share confers certain rights and obligation but does not give the shareholder the right normally associated with the owning an asset. MEMBERS AS OWNERS Members are traditionally considered to be the owners of the company. For a company limited my shares, the members are called shareholders. Assure the type of personal property called chose in companies limited by guarantee do not have share capital. While the members of these company technically are the owners, they should be viewed Mora custodians of the legal entity subject to the terms of the entity’s constitution. Members rights are more restricted while shareholder owns the Shields and has rights to transfer them or use them as security for a loan, for instance, members rights vis-à-vis the business and operations of the company are limited. A member cannot take property from the company for personal use, interfere in management decisions, sell company assets, or do many of the other thing usually associated with ownership. Member’s rights – Voting on resolutions at members meeting (including resolutions for the termination and appointment of directors) Calling members meetings and/or proposing resolutions at meetings in limited circumstances. Receiving distributions from the company (example dividends or capital returns) Certain limited rights to receive information about the company. The right to commence, derivative and operation actions. Any additional right provided for by a company constitution. MEMBERSHIP The typical member is the shareholder in a company limited by shares. However, not all companies have share, all those example companies limited by guarantee. Who can be a member? Any individual or entity, example another company, can become a member. The corporation Act does not prescribe a minimum age requirement for an individual to become a member. However, at common law, contracts entered by minors for the purchase of shares may be subject to recession by the minor. Becoming a member – Written consent must be obtained before a person. An individual or entity can be recorded as a member of a company. The person becomes a member when their name is recorded on the company's register of member s 231(b) of the Corporations Act. A person can become a member in any of the following cases: upon registration if specified in the application for the Registration (ss 120(1) and 231 (a), Applying for and being allotted share (example of a company’s offering shares to the public for purchase and a person decides to apply for and purchase those shares). receiving a transfer from an existing member. This can occur where one person purchases shares from a current shareholder. This is how shares are transferred on a public share market, Exercising option of warrants, over shares and receiving shares where transmission on the death, bankruptcy, or incapacity of an existing member. This occurs by operation of the law. MEMBERS MEETINGS Members exercise decision making powers at members meetings. At members meeting members are typically provided information about matters at the company requires the members to vote on. Such matters may include:  Appointment or removal of directors,  Purchasing of assets  Approving share buybacks, or  Approving director’s remuneration Meetings are either annual general meetings, which are mandatory for public companies, or extraordinary general meetings, which are held to address and hoc matters. Each decision made at a member’s meeting is done so by the members passing a resolution. Calling a meeting – A members meeting can be called by the following parties the following ways: Directors: Section 249 C of the Corporations Act provides that any director can call a members meeting. Shareholders request: the directors of a company must call and arrange meeting on the request of members holding, 5% of the voting shares. The request must be in writing and state that the resolution that the members propose. The meeting must be called within 21 days of the request and be held within two months. PROPER PURPOSE A meeting cannot be held for an improper purpose. If members attempt to requisition a meeting under section s 249D or section 249 F of the Corporations Act in order to interfere in management decisions in violation of the principle. 2 Where there is a breach of a member’s rights, they are entitled to take action to seek a remedy. Remedies are intended to enforce the rights of members. In brief member can: Seek a statutory remedy. bring a statutory derivative action. take personal action. sue the company at common law for breach of their personal rights as members. sell their shares and exit the company. STATUTORY REMEDIES The statutory remedies available to members are bringing an action under ss 232-235 of the Corporations Act for oppressive or unfair conduct (the oppression remedy), applying to the court for a winding up of the company under s 461, and applying under s 1324 for an injunction to prevent breaches of the Corporations Act. The oppression remedy – There is a statutory remedy for oppressive or unfair conduct that is available to members when the conditions set out under s 232 of the Corporations Act are met. These conditions specify:  Who can apply for an order  In what circumstances the court will make an order  The legal tests for oppressive or unfair conduct, and  The type of court orders available for oppressive or unfair conduct. Section 232 covers an enormous range of potential circumstances when the conduct of the affairs of the company is contrary to the interest of the members as a whole or is oppressive or unfair to a member. APPLICANTS A member, including current or former members in some circumstances, or any other person that the Australian Securities and Investments Commission (ASIC)thinks appropriate, can apply for an order under s 233. Section 234 states that: An application for an order under Section 233 in relation to a company may be made by: 5 a) A member of the company, even if the application relates to an act or omission that is against; the member in a capacity other than as a member or another member in their capacity as a member. b) A person who has been removed from the register of members because of a selective reduction; or c) A person who has ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member; or d) A person to whom a share in the company has been transmitted by will or by operation of law; or e) A person whom ASIC thinks appropriate having regard to investigations it is conducting or has conducted into - the company’s affairs; or matters connected with the company’s affairs. The oppression remedy applies to all types of companies, but it is most commonly used in private companies where a minority interest cannot satisfactorily deal with the other shareholders. When a party is seeking a remedy under s 233, the court must consider the circumstances, whether the matter is related to:  The conduct of the affairs of the company,  An action, proposed action or omission on behalf of the company, or  A resolution or proposed resolution by members. TESTS The court considers various legal tests for oppression and/or unfairness:  reasonable person test  reasonable expectations test The important principle highlighted in Wayde v New South Wales Rugby League Ltd is that while a decision might be harsh on a member or some members, if the action is that of a reasonable director, then the action will not be seen as oppressive. In another legal test, the courts have referred to the ‘reasonable expectations’ test, that is, the reasonable expectations of the members of the company, based on its history and background. Circumstances in which the court has found that conduct was oppressive or unfair include: Diversion of corporate opportunity Diversion of profits, or Director’s failure to act in the interests of the company. Excluding a minority member from the management, or Unfairly restricting dividends. RELIEF AVAILABLE FOR OPPRESSIVE OR UNFAIR CONDUCT If the court finds that oppression has occurred, it can make a variety of orders under s 233 of the Corporations Act. These includes an order to:  Wind up the company (though this usually a last resort, as other remedies will usually serve members better,  Modify or repeal the company’s constitution,  Regulate the conduct of the company in the future.  Force other members to purchase the shares of a member. 6  Force the company to commence or defender legal action,  Appoint a receiver manager, or  restrain a person from doing something. Any order made will be intended to stop the oppressive or unfair conduct and compensate the wronged party. STATUTORY DERIVATIVE ACTION The statutory derivative action, ‘proceedings on behalf of a company by members and others’ enable various parties to apply to the court for leave to enforce the company's legal rights when the company itself will not take action. In other words, various parties can ask the court for permission to take legal action behalf of and in the name of the company itself. Leave to bring the action can be sought by: • a member, former member, person entitled to be registered as a member of the company or related body corporate. • an officer or former officer of the company. Section 236(1) enables the court to grant leave to: • commence proceedings in the name of the company. • intervene in existing proceedings to take responsibility for the company. WHEN THE COURT WILL GRANT LEAVE Section 237(2) of the Corporation Act sets out when the court will grant leave to bring a statutory derivative action. The court will grant the application to take action in the company’s name if all the conditions are met. 7 Stewardship: developing and maintaining an enterprise-wide recognition that the organisation is managed for the benefit of its shareholders/members taking reasonable account of the interest of other legitimate stakeholders. Integrity: developing and maintaining a culture committed to ethical behaviour and compliance with the law. IMPLEMENTING GOOD CORPORATE GOVERNANCE Implementing good corporate governance work across three levels, good corporate governance ensures accountability from company officers, and resulting standards of company behaviour that are appropriate for the company, its members and society as a whole. Important to realise that some concepts of good corporate governance device for large public companies may not be practicable for small, proprietary companies.  ASX corporate governance principles (effective for periods commencing on or after 1 July 2020): 1. Lay solid foundations for management and oversight 2. Structure the board to be effective and add value 3. Install a culture of acting lawfully, ethically and responsibly 4. Safeguard the integrity of corporate reports 5. Make timely and balanced disclosure 6. Respect the rights of security holders 7. Recognize and manage risk 8. Remunerate fairly and responsibly OFFICERS A company officer is a person who participates in or make decision that can have a substantial effect on to the business. A company officers are usually that directors, a company secretary another senior manager. 10 DIRECTORS A director is a person elected or appointed to the board of Directors, who then has responsibility for carrying on the company's business on behalf of and in the interest of the company as a whole. It can also include the people who act as if they are director, even if not formally appointed. Under the Corporations Act :  A proprietary company must have at least one director,  a public company must have at least three directors.  Only an individual who is at least 18 years of age may be appointed as a director of a company, and  a person who's appointed a director must give the company their consent in writing before being appointed. At least one director in a proprietary company and at least two director in a public company must ordinarily reside in Australia. Formally appointed director Alternate director  formally appointed to stand in for another director De facto director  not validly appointed but acts in the position anyway Shadow director  not appointed, but has influence over the directors — they do not act without the consent and instruction of the shadow director DISQUALIFICATION When considering who to appoint as a director, it is important the company has in place some procedure to check that the proposed person has not been disqualified from acting as a director. It is also important to review the position of existing director to ensure that they do not become disqualified during the year. A person can be disqualified from being a director of a company for a variety of reasons. Disqualification is intended to protect members punish directors who act improperly and deter improper behaviour by others. REMOVAL OF DIRECTORS I. In a proprietary company: 11  director can be removed by the other directors if it is provided for in the internal rules of the company,  or the members if it is provided for in the internal rules of the company. II. In a public company:  the removal of a director by other directors not allowed  the members can remove a director at a general meeting and by ordinary resolution. The removal of a director by the member is one of the main ways members have way off ensuring the company is managed in the manner they wish. While it does not provide them with control over the specific decisions made by the management of the company. This power can serve to influence the overall direction of the company once the director has been removed. The company must update their details about Board of Director using a SIC online service within 28 days to advice of the change. 12