Question

ha 00 UI as directors; and (b) whether they have hi hether they have breached their duties as directors, (C) available remedies for Tom would dondy and Azie what duilles. of Duty by Dandy of aziz. is eir duties as directors: anda yang om 1 Duty Ques r. Randy of ostis Duty do act good to Emines estion 4 out ton. Proputuje Imponer portion papes of positio 18th 182 13 Marks 1, Aziz and Randy have decided to call a meeting of the members of AB Ltd to pass special resolution to convert the compan ution to convert the company to a public company limited alcs. They give notice to the members of the company to attend the meeting but two of the ten members failed to receive the no Seation 1322 len members failed to receive the notice due to an administrative error. Tom seeks your advice on: (a) On whether the meeting would be invalid and what options the board might have under the Corporations Act 2001 (3 Marks) (b) the differences between a public company limited by shares and proprietary company limited by shares. (c) the requirements to raise $20 million in Shire com e od stola o sol Question 5 buen toyotube lomill apita (5 Marks) (4 Marks) - ( 6 Marks ABCI td a company lion

Answer 1

a. Section 1322 (1) of the Corporations Act 2001 provides that a proceeding (which includes a general meeting) under that Act is not invalidated because of any procedural irregularity unless the court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the court and by order declares the proceeding to be invalid.
A reference to a procedural irregularity includes a reference to the absence of a quorum at a meeting of a corporation and a defect, irregularity or deficiency of notice or time. U/s 1322(2) a procedural irregularity does not cause a meeting to be invalid unless the court is of that opinion.

Now referring to the question, 2 members havent received the notice of the meeting out of 10 due to administrative error. This is not a wanted default made by the company, it is considered as accidental. Thus the meeting will not be invalid as per the Corporations Act 2001.

b. A company limited by shares means that a member’s responsibility for the debts of the business only equals any unpaid share capital. Be aware that a company limited by shares can also be a proprietary company.

The main difference between a public and private company is a question about when each is suitable and what they can do. Small businesses typically use proprietary companies. One reason for this is that their financial affairs tend to remain more private. This privacy is because proprietary companies can have no more than 50 non-employee shareholders.

Another reason small businesses prefer proprietary companies is that they are subject to less regulation than public companies. For example, they need not have annual general meetings or comply with disclosure obligations regarding declarations of material personal interest on the part of directors. This makes them less costly to maintain.

However, under the Act proprietary company can be small or large. This designation has implications concerning the rules about accounting and disclosure of financial data. Understandably, large proprietary companies have more public accountability measures placed on them given that they are more economically significant entities who can potentially have a greater impact on the community.

In contrast, public companies are bigger entities. They have an unlimited membership and thus greater access to funds from the community. Public investment in these entities is a regulatory concern because it involves risk to ordinary people. Moreover, the risk increases if they are financially inexperienced.

The Act, therefore, requires the disclosure of certain information from public companies to guide and protect individuals in their investment decisions. Public companies also have greater obligations such an annual general meetings, having an auditor and disclosing financial benefits to directors. These measures are designed to improve as much as possible the inherent power imbalance between ordinary investors and large public companies.

Public companies can also be listed (on the ASX) or unlisted. Proprietary companies are always unlisted.

c. An investor becomes an equity investor on subscribing for and receiving shares in a company. Alternatively, an investor may acquire shares in a company from an existing shareholder, although such transactions do not represent any change to the company's capital structure. Section 124 of the Corporations Act 2001 empowers companies to issue shares (and options over shares). Any company has the power to issue shares to any person at any time, but only a public company can offer to issue shares to the public. A proprietary company can only issue shares to individual persons known to the company. If a company wishes to issue new shares, it is generally regarded as a matter within the competence of the board of directors. This is based on the assumption that an injection of capital is necessary for the financial operations of a company from time to time.

Restrictions in Listing Rules:

1. A company can only issue preference shares if its constitution sets out the particular rights of those preference shares. Further, a company cannot, by an issue of shares, vary the rights of an existing class of shareholder without following procedures set out in the company's constitution.

2. Directors must not issue shares for an improper purpose such as to assist or frustrate a takeover. Other restrictions are contained in the Corporations Act 2001.

3. A publicly listed company wishing to increase the company's issued capital by more than 15% in a year will require a vote of the members.

4. The Corporations Act 2001 provides protection for investors wishing to purchase new shares in a company by requiring that all relevant information is disclosed to the investor (through a disclosure document) before the investor can acquire shares in the company. This is to enable potential investors to ascertain whether they wish to pursue the investment. The most common form of disclosure document is known as a prospectus.

Requirements:

1. Since proprietary companies cannot solicit money from the public for the subscription of shares in the company (s 113(3)), this discussion relates only to public companies. If a company is offering to issue new securities, it must prepare a disclosure document (s 706) and lodge it with ASIC (s 718) unless the offer is exempted under s 708 or s 708A. Some important exemptions are:

a. small-scale offers where fewer than 20 persons subscribe for less than $2 million worth of shares in any rolling 12-month period.

b. where the subscribers are regarded as sophisticated investors – ie those who subscribe $500,000 or have net assets of $2.5 million and gross income of over $250,000 and this has been certified by an accountant.

c. where the subscribers are regarded as professional investors – ie listed companies, superannuation funds, banks etc.

d. where the offer is made through a licensed dealer

e. where the offer is made to persons associated with the company, such as existing shareholders, executive officers of the company.

f. where the offer is a rights issue to existing holders of listed securities which are currently traded on a securities market, such as the Australian Securities Exchange (ASX), and from a company which is subject to the continuous disclosure obligations applicable to most listed companies