TRUE/FALSE QUESTIONS
1. Every public company must have “Ltd” or “Limited” at the end of its name.
2. The concept of limited liability applies to associations created under the various states’ Associations Incorporation Acts even though those entities are not formed under the Corporations Act 2001 (Cth).
3. 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 $12.5 million; - Consolidated gross assets is less than $25 million; and - Less than 10 employees.
4. Both public and proprietary companies must have at least one member.
5. The concept of limited liability means that a company’s liability is limited to any amounts remaining unpaid on its shares.
6. 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. 7. The recognition that a company is a separate legal entity distinct from its shareholders is often referred to as the ‘veil of incorporation’.
8. Nourish Ltd is the largest charity in Australia which provides food to homeless people. Nourish Ltd must have at least 3 directors and 1 shareholder whose liability is limited to the amount, if any, unpaid on the issued amount of its shares.
9. In accordance with section 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.
10. 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.
MULTIPLE CHOICE QUESTIONS
1. 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.
2. Which of the following is incorrect?
(a) Public companies must have the word Limited or Ltd after their name.
(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.
3. 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) If Lorikeet Pty Ltd does not have a constitution, the replaceable rules apply to Lorikeet Pty Ltd.
(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 section 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.
4. 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.
5. Section 112(2) of 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.
6. The maximum number of shareholders a proprietary company can have is:
(a) There is no maximum.
(b) 50 non-employee shareholders.
(c) 50 non-officer shareholders.
(d) 50 with at least two who are Australian residents.
(e) 40 with at least two who are also directors.
7. 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.
8. Spokes Pty Ltd owns and operates several bicycle stores in suburban Sydney. Spokes Pty Ltd has a constitution which includes the following article: “Objects Clause: Spokes Pty Ltd shall only engage in the business of retailing bicycles.” The directors of Spokes Pty Ltd desire to start a confectionary manufacturing business. In furtherance of that goal, the directors enter into a contract for the purchase of a chocolate making machine in the amount of $1,500,0000. The contract is:
(a) Not binding because Spokes Pty Ltd had no power to enter into the contract and it is therefore ultra vires (see Ashbury Railway Carriage and iron Company v. Riche, (1875) L.R. 7 HL 653).
(b) Provided the directors pass a resolution authorising that the contract be entered into, the contract would be binding.
(c) Binding because section 124 of the Corporations Act (Cth) 2001 gives the company broad powers and section 125(3) of the Corporations Act (Cth) 2001 provides that an act of a company is not invalid merely because it is contrary to or beyond any objects in the company’s constitution.
(d) Not binding because section 44C of the Corporations Act (Cth) 2001 provides: 44C: Limited power of proprietary companies A proprietary company has no power to enter into any contract for a value in excess of the amount set forth in the regulations. Any contract entered into in excess of the amount set forth in the regulations is void and unenforceable.” The regulations provide the amount is currently set at $1,250,000.
(e) Would ONLY be binding if it was signed by two directors of Spokes Pty Ltd in accordance with section 127(1) of the Corporations Act (Cth) 2001.
(f) Both (c) and (e) are correct.
9. Why does a company require people to act on its behalf?
(a) The corporations act requires a company to have at least one member
(b) While the company is a separate legal entity and members generally enjoy limited liability, it is possible in certain circumstances to lift the corporate veil.
(c) An unlimited company is a company whose members have no limit placed on their liability to the company.
(d) A company is an artificial legal construct and relies on persons to make decisions and take action on those decisions.
10. Which of the following is NOT one of the tests contained in s46 of the Corporations Act to determine whether a company is a subsidiary of another company?
(a) The holding company controls more than 50 per cent of the votes of the subsidiary company.
(b) The holding company holds more than 50 per cent of the issued shares of the subsidiary company.
(c) The subsidiary company has shares in its holding company or give assistance
(d) The company is a subsidiary of a subsidiary of the holding company.
11. 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.
12. Joanne is a shareholder of Queensland Coal Ltd. She purchased 100 shares worth $10 each. Joanne’s best friend Natalie owns $1,000 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.
PROBLEM QUESTIONS
1. For the past several years, Bobby Byron has been working on a new design for the manufacture of surfboards. While Bobby believes that the sale of his inventive surfboard will make a lot of money, considerable additional research and development is needed to perfect the design. Indeed, the first few prototype surfboards that were manufactured snapped and one had fins that were too sharp and injured the person using it. Bobby believes that if the design is successful, many thousands of people will want to invest in his company. Advise Bobby about the most suitable type of company for his surfboard design project.
2. What type of company would be best suited for the following organisations:
a. A charity raising funds for cancer research.
b. A major domestic soccer federation.
c. Three friends who wish to start a fashion business.
d. A group of 75 people who have agreed to pool money and invest in the stock market.
e. A mining company that wants to invest in a speculative gold mining venture with its own funds and funds raised from the public.
f. A start-up telecommunications company that needs $1billion for its infrastructure and intends to raise the funds from the public.
3. Blondie Pty Ltd was registered with Matt and Aaron as its directors. Blondie Pty Ltd has issued 5 shares with the following persons owing one each: Matt, Aaron, Jason (Matt’s son), Janice (Aaron’s daughter) and Marilyn (Aaron’s friend). Blondie Pty Ltd operated a business which manufactured and sold widgets. After the company was formed, the following happened. Would the shareholders and/or directors be personally liable to the landlord, NAB Bank, Janice, or Acme Computers Pty Ltd? Explain.
a. Blondie Pty Ltd entered into a lease for new premises where the business was to be headquartered.
b. Blondie Pty Ltd borrowed $100,000 from NAB Bank on an unsecured basis. Matt personally guaranteed the repayment of the loan.
c. Blondie Pty Ltd purchased a block of land from Janice for $500,000 to build a new warehouse. Blondie Pty Ltd gave Janice a mortgage over the land equal to the $500,000 purchase price.
d. Blondie Pty Ltd purchased several computers from Acme Computers Pty Ltd. One third of the purchase price was paid on delivery and the balance payable in equal monthly instalments.