Corporate Law: Law principles and practice

Report
Corporate
personality and
business
organisations
Corporate Law: Law principles and practice
Liabilities of members
Normally, members of an unincorporated association
have restricted liability and cannot be made
responsible for liabilities beyond the amounts of their
subscriptions.
Wise v Perpetual Trustees [1903] AC 139
Corporate Law: Law principles and practice
Members’ rights
Members have few, if any, proprietary rights in the
property of the unincorporated association.
Cameron v Hogan [1943] 51 CLR 358
It is presumed that there is no particular contractual
relationship between the members and the
unincorporated association, unless a member can show
that the association is more like a professional
organisation.
Cameron v Hogan [1943] 51 CLR 358
Corporate Law: Law principles and practice
A restraint of trade action may be possible against an
unincorporated association where the restraint contained
in a contract appears to be unreasonable.
Buckley v Tutty (1971) 125 CLR 353.
Note the application of statute: see, for example, s 14A
of the Associations Incorporation Act 1981 (Vic) and its
similarities to s 140 of the Corporations Act 2001 (Cth).
Corporate Law: Law principles and practice
Dissolution of unincorporated associations
Unincorporated associations can be dissolved when events
occur that that have the effect of ending the existence of the
club or society (association).
Assets are collected, liabilities are determined and paid, and
the surplus, if any, is distributed. The process can be
determined by the association’s rules in their constitution.
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Voluntary dissolution occurs when the members agree to
dissolve the association
Court-ordered dissolution occurs when the association is
no longer functional or the members cannot agree on the
purpose of the association
Corporate Law: Law principles and practice
Distribution of surplus assets
Distribution of surplus assets usually takes place in
accordance with the club’s or association’s constitution.
If the constitution makes no provision for the distribution
of the surplus, there is a presumption that each member
receives an equal entitlement.
Re GKN Bolts and Nuts Ltd Sports and Social Club
[1982] 2 All ER 855
Re Sick and Funeral Society of St John’s Sunday School,
Golcar [1973] Ch 51
Corporate Law: Law principles and practice
Incorporated associations
An association may register an incorporated association
under state or territory legislation, thereby creating a
recognised legal entity which can enter into contracts,
hold property, and sue and be sued.
Not-for-profit organisations can register as guarantee
companies under s 150 of the Corporations Act 2001
(Cth).
If an association registers as an incorporated association,
it is not a company and is not subject to the
Corporations Act 2001 (Cth), unless it trades interstate.
Corporate Law: Law principles and practice
An incorporated association must satisfy certain
requirements in order to receive registration (for example, it
must have a minimum of five members).
An incorporated association should be a ‘not-for-profit
organisation’, meaning it can make profits but not distribute
them as dividends to members; if it does, it will be held to be
a partnership. The same applies to unincorporated
associations.
After registration, an incorporated association must indicate
its status with the abbreviation ‘Inc’.
Legislation introduced into a number of states and territories
has increased the regulatory requirements on officers within
an incorporated association, similar to directors of
companies.
Corporate Law: Law principles and practice
Incorporated associations cont …
An association may register an incorporated association
under state or territory legislation, thereby creating a
recognised legal entity which can enter contracts, hold
property, sue and be sued.
Not-for-profit organisations can register as guarantee
companies under s 150 of the Corporations Act 2001
(Cth).
If an association registers as an incorporated association,
it is not a company and is not subject to the Corporations
Act 2001 (Cth), unless it trades interstate.
Corporate Law: Law principles and practice
Members’ rights and liability
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The rules of the association or club constitute a contract
between the association and its members.
Members will have standing to take action to enforce
their membership rights.
Legislation provides procedures for dealing with
disputes between members and the association.
Legislation limits the liability of the members for the
club’s debts to the extent provided for in the
association’s rules.
Members may be liable if they aid and abet wrongdoing
through the incorporated association.
If an incorporated association trades while insolvent,
then the members will become jointly and severally
liable for the debt.
Corporate Law: Law principles and practice
Maintaining financial records and audit
An incorporated association must keep and maintain
adequate and accurate accounting records. These records
will be audited.
Dissolution of the incorporated association
Winding up of the incorporated association must be in
accordance with the Corporations Act 2001 (Cth). State
and territory legislation determines whether surplus assets
are given to members, or perhaps to charity.
Corporate Law: Law principles and practice
Fiduciary duties of committee members
The Committee has a fiduciary obligation to the
association. Committee members:
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must act in good faith and in the association’s
interest
must disclose any interests they hold in
relation to the association’s business.
Corporate Law: Law principles and practice
Partnerships
Each state and territory has:
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legislation which determines whether a partnership is
in existence,
the regulation that applies to a partnership; and
further relations that exist between different parties
within and outside of the partnership.
Corporate Law: Law principles and practice
The definition of a partnership
The usual definition of a partnership is ‘the relation which
subsists between persons carrying on business in common
with a view to profit’ and includes incorporated limited
liability partnerships.
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a business relationship must be carried on
the partnership must be carried on in common
the partnership must be carried on with a view to
profit.
Corporate Law: Law principles and practice
The definition of a business
A business is defined as including any trade occupation
or profession.
It usually requires a repetition of transactions and
mutuality by the members, or it may not be a
partnership.
Smith v Anderson (1880) 15 Ch D 247
A single transaction will not usually determine an
enterprise to be a business.
Turnbull v Ah Mouy [1871] 2 AJR 40
Corporate Law: Law principles and practice
The definition of a business cont …
An enterprise or association of individuals may amount to
alternative relationships if they do not satisfy the
requirements of a partnership (e.g. master– servant
contracts are not partnerships).
If a business has not commenced, it is not a partnership.
Goudberg v Herniman Associates Pty Ltd [2007] 12
VSCA, 16
Keith Spicer Ltd v Mansell [1970] 1 WLR 333
There could be separate businesses, rather than a mutual
one.
Checker Taxi Cab Co Ltd v Stone [1930] NZLR 169
Corporate Law: Law principles and practice
The definition of a business cont …
Note that a joint venture is not a ‘business in common’
and consequently is not a partnership (unless the members
do conduct the enterprise as a partnership).
A club, society or charity is not a partnership because
there is ‘no view to profit’.
Persons operating a partnership may not even be aware
they are in a partnership, since a partnership does not need
to be registered (except for a limited partnership).
Partnerships are not separate legal entities. The partners
share unlimited liability for the obligations of the
partnership.
Corporate Law: Law principles and practice
The definition of a business cont …
A partnership may be referred to as a ‘firm’.
Note that quite diverse bodies (entities) can form a
partnership (e.g. a company and the government could
be in a partnership for a project).
Corporate Law: Law principles and practice
Determining the existence of a partnership
A partnership is contractual in nature and may be formed
by an agreement, whether express or implied.
An express agreement can be written or verbal.
An agreement can be implied from the conduct of the
parties.
Persons who hold themselves out as partners, or allow this
to happen, will take the same responsibilities as other
partners.
Corporate Law: Law principles and practice
Rules for determining whether there is a partnership
Legislation determines which relationships are, or are not,
partnerships.
The rules for determining whether a partnership exists
expand the application of the ‘partnership definition’.
Corporate Law: Law principles and practice
Rules for determining whether there is a partnership cont …
Sharing of gross returns from an enterprise, or co-ownership of
property, does not automatically make the participants a
partnership.
Cribb v Korn (1911) 12 CLR 205
Sharing of profits does indicate there is partnership, unless the
sharing of profits was for reasons other than being in a
partnership. For example,
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when there is a repayment to a lender in the form of a share
of profits (Re Ruddock [1879] 5 VLR 51), or the payment of
interest as a share of profits
when profits are paid to an employee as part of their
remuneration (Walker v Hirsch [1884] 27 Ch D 460)
Corporate Law: Law principles and practice
Rules for determining whether there is a partnership cont …
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when profits are paid to a spouse, domestic partner or
child of a deceased partner who receives a share of
profits as an annuity on the death of a partner
when a person who receives an annuity or share of
profits in return for the sale of a business is not by
reason of such receipt a partner in the business (Pratt v
Stick [1932] 17 TC 459).
Corporate Law: Law principles and practice
If all the facts indicate a degree of mutuality and a lack
of independence, then there is a partnership because
there is a business in common with a view to profit.
Davis v Davis [1894] 1 Ch 393
Corporate Law: Law principles and practice
Establishing a partnership
A partnership can be expressly created by writing up the
partnership details, or if the parties orally state their
express intention to create a partnership. A written
agreement is the best possible way of establishing a
partnership, and a standard partnership agreement form
can be purchased.
A partnership may be implied by the conduct of the
parties, (i.e. if they satisfy the definition of a partnership
as a business in common with a view to profit).
Corporate Law: Law principles and practice
Establishing a partnership cont …
A partnership agreement should contain all the terms of the
partnership:
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the parties
the contributions of each partner
the means by which a partner can leave
interest to be paid on any loans made to the partnership
the means of dissolving the partnership
whether dependents of partners may receive a share of a
deceased partner’s original share
how disputes will be resolved
whether a partner actually owns the partnership, or is a
partner in name only
whether there are senior and junior partners, (e.g. a
managing partner).
Corporate Law: Law principles and practice
Establishing a partnership cont …
Note that if the partnership agreement does not make a
provision for a contingency, then partnership legislation
will determine the relationship and terms existing within
the partnership relationship.
Corporate Law: Law principles and practice
Regulation of a partnership
A partnership may need to register a business name if
operating under a name other than their own: see the Business
Names Act in each jurisdiction.
A partnership may need to register an ABN if their turnover is
more than $75 000 and they wish to receive a credit for GST.
Partnerships are nominally limited to 20 persons, but there are
many exceptions (e.g. people such as lawyers, architects,
doctors and accountants can have many more members
(Regulation 2A.1.01 of the Corporations Regulations 2001
(Cth)
Equal opportunity and anti-discrimination legislation applies to
partnerships (e.g. Equal Opportunity Act 2010
(Vic) and the Sex Discrimination Act 1984 (Cth)).
Corporate Law: Law principles and practice
Different types of partnerships
There are a number of different types of partnerships,
depending upon the arrangements made by the
partners themselves.
Salaried partner: salaried partners do not normally
own a share in the partnership. Instead, they receive a
share of the profits, as well as a wage or salary.
Note that if a person is held to be a partner, even a
salaried one, they will be equally liable.
Lynch v Stiff (1944) 68 CLR 428
Corporate Law: Law principles and practice
Different types of partnerships cont …
Silent or dormant partner: sleeping or silent partners may
put capital into a partnership and take little part in the dayto-day running of the business, but may still be liable.
Sub-partnership: a sub-partnership is when one partner
enters into a contract with another partnership
to share their own personal interest in a separate partnership,
therefore being in two partnerships at the same time.
Australia and New Zealand Banking Group Ltd v
Richardson [1980] Qd R 321
Limited liability partnerships: the USA, England, Europe,
New Zealand and most Australian states have limited
liability partnerships (LLPs).
Corporate Law: Law principles and practice
Limited liability partnerships
The partnership must register as a limited liability
partnership. The (limited) partners, who undertake not to
manage the partnership, can receive limited liability (to the
extent of what they have contributed). General partners, who
do manage the partnership, cannot take limited liability.
A limited partnership must have at least one unlimited
general partner.
A body corporate can be a general partner or a limited
partner.
A limited partnership is taxed similarly to a company (and is
hence less popular these days).
Corporate Law: Law principles and practice
Incorporated limited liability partnerships
Australia introduced legislation allowing each state and
territory a very special type of limited partnership. These
are permitted under the Venture Capital Act 2002 (Cth).
This type of partnership is designed for large investment
activities. It must be registered and does allow for
limited partners, with at least one general partner.
This type of partnership requires a written partnership
agreement to be in force and this operates as a contract
between the ILLP and each partner.
Corporate Law: Law principles and practice
Partners’ relations to outsiders
The principle of partnership legislation is that each partner
is an agent for a firm and can bind the firm by an act
carried out in the firm’s usual way of business.
Kind of business carried on by the firm
For a partnership to be bound, a transaction must be a
‘usual’ transaction of that business. This is a question of
fact.
Mann v D’Arcy [1968] 2 All ER 172
Consider: what is the normal business of a petrol station?
Is it just petrol? What of papers, confectionary etc?
Corporate Law: Law principles and practice
Business carried on ‘in the usual way’
If a transaction is carried out in an unusual manner, other
partners may not be bound. That is, they may not be bound
by an act which is so strange that it indicates a partner is
acting without authority.
Goldberg v Jenkins [1889] 15 VLR 36
Authority to act for the firm
A partnership will not be bound by a partner’s actions
where the outsider knew that the partner was acting
improperly, or where they are not aware that the person is a
partner and acting on behalf of a partnership.
Otherwise partners must take liability for each other’s
actions, even if there restrictions on a party’s activities
within the partnership agreement.
Corporate Law: Law principles and practice
Authority to act for the firm cont …
A firm will be liable for any act or instrument (letter,
document or written form of any type) created in the
firm’s name, with the intention of binding the firm or
relating to the business of the firm, whether the act is by a
partner or not.
Corporate Law: Law principles and practice
Partners’ liability in contract and tort
Each partner is liable jointly with the other partners for all
debts and obligations of the firm incurred while they are a
partner.
The estate of a deceased partner is severally liable for the
debts of the partnership contracted before their death, but
subject first to the prior payment of their separate debts.
Joint liability means collective or combined or share
liability.
Joint liability means only one action can be brought against
the partnership. If a member is missed in the legal action
then they cannot later be sued.
Corporate Law: Law principles and practice
Liability of partners in tort or wrongful act
Partners are liable jointly and severally for wrongful acts
or an omission of a partner committed in the ordinary
course of business, or with the authority of the copartners (e.g. in negligence).
In National Commercial Banking Corporation of
Australia Ltd v Batty (1986) 160 CLR 251, it was found
that if an act was not part of the ordinary course of the
business, and there was no implied acceptance of the act
by the innocent partner, who lacked knowledge of the
activities, then the innocent partner may not be liable.
Corporate Law: Law principles and practice
Liability of partners in tort or wrongful act cont …
Severally means individually. Partners can be sued
together or individually. Further, partners can be sued at a
later point in time if discovered. A plaintiff may choose to
sue the wealthiest partner and then leave it to the partners
to settle liability amongst themselves.
Partners may be liable for each other for a lack care in
relation to employees (even if they did not participate in
the careless act).
Walker v European Electrics Pty Ltd (in liq) [1990] 23
NSWLR 1
Corporate Law: Law principles and practice
Liability of partners in tort or wrongful act cont …
The wrong need not be for the benefit of the firm to
impose liability on the innocent partners of the firm.
Polkinghorne v Holland & Whittington (1934) 8 ALJ 140
Note duty of care for those relying on advice
Hedley Bryne & Co v Heller & Partners [1964] AC 465
Corporate Law: Law principles and practice
Criminal Acts
Partners are liable individually (and collectively) for
each other’s criminal acts if connected to the business of
the firm.
Bishop v Chung Brothers [1907] 4 CLR 1262
Corporate Law: Law principles and practice
Liability for misapplication of money or property
A firm is liable when money or property of a third person
has been received by and misapplied by a member of the
partnership.
The liability of the firm depends on whether the partner
who misapplies the money had express or apparent
authority to receive it. It also depends on the money being
in the custody of the firm and whether its receipt was in
the ordinary course of business or not.
Polkinghorne v Holland & Whittington (1934) 8 ALJ 140
Lloyd v Grace, Smith & Co [1912] AC 716
Mann v Hulme (1962) 35 ALJR 153
Corporate Law: Law principles and practice
Partnership by estoppel or holding out
Where a person is deliberately (or even carelessly) ‘held
out’ by words, actions or in writing, to an outsider as
being an agent, the firm will be estopped (stopped) from
denying liability for that person’s actions or acts of
agency.
Note, however, some exceptions under Tower Cabinet Co
Ltd v Ingram [1949] 2 KB 397 and Lynch v Stiff (1944) 68
CLR 428.
Any representation made by any partner concerning a
partnership’s affairs and in the ordinary course of
business, is evidence against the firm.
Corporate Law: Law principles and practice
Liability of an incoming and outgoing partner
A person admitted into an existing firm does not
become liable for the debts or obligations contracted
before they became a partner.
A retiring partner does not cease to be liable for
partnership debts incurred prior to their retirement
(novation).
Novation is the substitution of a new contractual
liability in consideration of a release of an existing one.
Rolfe & Bank of Australasia v Flower Salting & Co
[1865] LR 1 PC 27
Corporate Law: Law principles and practice
Relations of partners between themselves
Partners are in a fiduciary relationship with each other
before, during and after the partnership has ended. They
are bound to exercise the utmost good faith in their
dealings with each other.
Partners relations might be set out in the partnership
agreement (e.g. contributions of capital, duration of the
partnership).
Corporate Law: Law principles and practice
Fiduciary duties to the firm
Partners are in a fiduciary relationship with the firm and
fellow partners. Partners must act ‘bona fide’, with utmost
good faith.
Partners’ duties to render accounts: partners must render true
accounts and full information of all things that affect the
partnership to any partners or their legal representative.
A partner of the firm must account to the firm for any
benefits they derive without the consent of the other partners
from any transaction concerning the partnership, or for any
use by the partner of the partnership property, name or
business connection.
Chan v Zacharia [1984] 58 ALJR 353
Corporate Law: Law principles and practice
Fiduciary duties to the firm
If a partner without the consent of the other partners
carries on any business of the same nature as, and
competing with, that of the firm, the partner must account
for and pay over to the firm all profits made by them in
that business
Pathirana v Pathirana [1967] AC 233
Corporate Law: Law principles and practice
Rules for determining the rights and interests of
partners
Subject to contrary agreement, express or implied by the
parties, partnership legislation set out the rules to determine
the rights, duties and interests of the parties in the
partnership.
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Partners are entitled to share equally in the capital and
profits of a business, and must contribute equally
towards any losses (including losses of capital) by the
firm.
Partners are entitled to indemnity for any payments or
personal liabilities incurred in the ordinary and proper
conduct of the business of the firm, or for anything
necessarily done in the interests of the business or
property of the firm.
Corporate Law: Law principles and practice
Cont …
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A partner who contributes to the partnership more
than their required contribution of capital is entitled
to interest at a statutory rate set by their jurisdiction.
A partner is not entitled to any payment of interest
until the profits of the firm have been assessed.
Every partner may take part in the management of
the partnership business, unless the agreement
expressly excludes this right.
No partner is entitled to payment for working in the
partnership business (unless the partnership
agreement specifies otherwise).
Corporate Law: Law principles and practice
Cont …
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No new partner can be admitted without the agreement
of all existing partners nor can a share of the partnership
be assigned.
A majority of partners cannot expel a partner unless
there is a power to do so in the partnership agreement
Differences of opinion between partners as to ordinary
matters connected with the partnership business may be
decided by a majority of the partners, but no change may
be made in the nature of the partnership business without
the consent of all existing partners.
The partnership’s books are to be kept at the place of
business of the partnership (or the principal place if there
is more than one) and every partner is entitled to have
access to them and inspect and copy any of them.
Corporate Law: Law principles and practice
Variation of partnership
The right of partners can be express or implied from the
partnership agreement and s 23 of the Victorian
Partnership Act allows for the variation of an agreement
with the consent of the partners, or it can be implied
from a course of dealing.
Public Trustee v Schultz [1964] 38 ALJR 128
Corporate Law: Law principles and practice
Partnership property
Partnership property is assumed to belong to the
partnership and must be used only for partnership
purposes.
Partnership property will be distributed equally on
dissolution, unless the partnership agreement specifies
otherwise.
Partnership property is not subject to claims by creditors
who have personal claims against individual partners,
though a claim may be made against the partner’s
interest in the partnership.
Corporate Law: Law principles and practice
Expulsion of a partner
No majority of partners can expel any partner unless a
power to do so has been conferred by express agreement
between the partners.
Bond v Hale [1969] 90 WN NSW 119
Corporate Law: Law principles and practice
Assignment of partnership
Under partnership law, it is possible for a partner to
assign (transfer) their share (profits) to another, but this
is subject to the partnership agreement. Other partners
must still agree to the assignee becoming a partner
Any assignment must be in writing and the assigning
partner must give notice of assignment to the other
partners.
Corporate Law: Law principles and practice
Retirement from the partnership
If no partnership agreement exists, and there is no fixed
time of partnership operation, the partnership ends by
notice of any partner.
Dissolution of the partnership
A partnership may be dissolved either by an act of the
partners or by the court on application.
A partnership agreement may determine the time and
method of dissolution.
Corporate Law: Law principles and practice
Dissolution by partners
Subject to any agreement between the partners, the
partnership can be dissolved:
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if entered into for a fixed term, by the expiration of
that term
if entered into for a single venture or undertaking, at
the end of that venture
if entered into for an undefined period of time (a
partnership at will), in which case the partnership
ends by notice of one partner
by the death, bankruptcy or insolvency of any partner
where a partner allows their share to be charged for
their personal debts
if the partnership business becomes illegal.
Corporate Law: Law principles and practice
Dissolution by the court
Partners can apply to a court for dissolution where:
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A partner has been declared of unsound mind and
incapable of management.
A partner is incapable of performing their part of the
partnership contract or business, (e.g. from professional
disqualification).
A partner has been found guilty of conduct that will
prejudicially affect the business.
A partner continually commits a breach of the partnership
agreement, acts contrary to the interests of the partnership
or is continually absent.
The partnership business cannot be carried on except at a
loss.
The court is satisfied that it is just and equitable to
dissolve the partnership.
Corporate Law: Law principles and practice
Notification of dissolution
Partners can (and should) give a public notice of the end
of the partnership. This is notice that retiring partners
can no longer bind the firm.
Lack of public notice may allow a retiring partner to
bind the firm for their activities (e.g. by use of the firm’s
letterhead).
Corporate Law: Law principles and practice
Distribution of property post-dissolution
On the dissolution of the partnership, the property of the
partnership is used for payment of partnership debts and
obligations.
Partners share the remaining surplus, and this may be
used for payment to personal creditors.
Profits from an ongoing partnership may be distributed
to the family of a deceased partner (subject to the
partnership agreement).
Corporate Law: Law principles and practice
Distribution of assets on dissolution of the partnership
Losses and deficiencies must be paid first from profits, then
from the capital and lastly from the partners individually
according to their individual proportional rights.
The distribution of assets follows a certain order of priority:
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payment of debts and liabilities to non-partners
payment to each partner of money lent to the partnership,
other than their capital contributions, which is paid in
proportion to their contribution if the funds are insufficient
payment to each partner of their capital (or in proportion to
their contributions if there are insufficient funds)
payment to each partner of the surplus in proportion to the
agreed share of profits while the partnership was a going
concern.
Corporate Law: Law principles and practice
Advantages of a partnership
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specialisation of skills and a pooling of resources
fewer formalities and less expense
a degree of flexibility in terms of constructing the
partnership relationship
the possibility of income-splitting, though it is
subject to taxation regulations.
Corporate Law: Law principles and practice
Disadvantages of a partnership
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Partners have no separate entity from the partnership.
The unlimited liability to creditors means that personal
assets may be available to creditors of the partnership.
Partners are liable for each other’s actions
Partners must take out personal insurance and
superannuation because they cannot employ
themselves.
Partnerships are limited to 20 members, though there
are some exceptions
Partnership legislation may override certain agreements
made between partners.
Dissolution of a partnership may be prompted by an
application to a court, or breakdown of partnership
relations.
Corporate Law: Law principles and practice
Joint ventures
Joint ventures may be used for a one-off or fixed-term
project to produce profit to be shared by the coventurers.
The definition of a joint venture is quite vague and in
some instances tax legislation may determine that a joint
venture is, in fact, a partnership.
Tikva Investments Pty Ltd v FCT (1972) 128 CLR 158
Corporate Law: Law principles and practice
Defining a joint venture
A joint venture is an arrangement or contract
whereby two or more parties enter into an agreement to
contribute to a specific project, and hold respective
shares, without forming a partnership.
Each party contributes some skill or property, not
necessarily of the same type, for the purposes of joint
‘product’, without binding their joint venturers as
principals or agents—unless each has expressly agreed
to do so.
Unlike a partnership, a joint venture is not a business in
common.
Corporate Law: Law principles and practice
Distinguishing a joint venture from a partnership
A joint venture which conducts an enterprise as a
‘business in common’ will be a partnership.
If the joint venture agreement is not properly documented
and the roles of each party are not properly distinguished
the enterprise may be held to be a partnership.
Canny Gabriel Castle Jackson Advertising Pty Ltd v
Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321
United Dominions Corporation Ltd v Brian Pty Ltd
(1985) 157 CLR 11
Corporate Law: Law principles and practice
The law governing joint ventures
Joint ventures are not registered.
Joint ventures are not regulated by any particular statute,
though they may be subject to general business
legislation (e.g. business names legislation, company
legislation, tax legislation).
Corporate Law: Law principles and practice
Joint venture agreements
Members of a joint venture should set out their
relationship in a contract.
Any agreement should specify ownership of property,
rights of members, resolution of disputes, and the
process for leaving or dissolving the joint venture.
Corporate Law: Law principles and practice
Use of joint ventures
Joint ventures may be used for projects for which a single
party does not have the necessary capital, expertise or
licence to undertake the particular project.
Joint venture projects might occur in mining, research and
development, manufacturing or housing development.
A joint venture can be an association of entities in any
number of business combinations (e.g. two or more
companies or two sole traders. Even a government may
enter a joint venture.).
A joint venture on reaching a membership of 20 must
incorporate (Corporations Act 2011 (Cth) s 115).
Corporate Law: Law principles and practice
Ending a joint venture
A joint venture may end:
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by agreement
by agreement under a contract
when the project comes to an end.
Corporate Law: Law principles and practice
Advantages of joint ventures over partnerships
•
•
•
•
•
•
Joint ventures are not responsible for acts of coventurers: co-venturers are not agents for each other.
Joint ventures have greater flexibility in determining
the tax treatment of various items in their accounts.
The joint venture can dispose of its share of its
product in any manner.
Generally joint venturers can transfer or assign their
interest in the venture without consent.
If a fiduciary relationship does not exist between coventurers then they may be able to compete with and
against each other.
Because of the uncertain nature of joint ventures,
they have a measure of protection from being sued in
the name of the joint venture.
Corporate Law: Law principles and practice
Syndicates
A syndicate is similar to a joint venture, but is more easily
distinguished by comparing it to a partnership.
Syndicate members do not have a fiduciary relationship,
nor accept liability for each other, as occurs in a partnership.
A syndicate is a combination of persons who have become
associated for the purpose of promoting some business
enterprise.
A syndicate is a relationship in which the parties have fewer
mutual or common interests than those existing between joint
venturers.
Beckingham v The Port Jackson and Manly Steamship Co
(1957) 57 SR (NSW) 403
Corporate Law: Law principles and practice
Trusts
A trust is an equitable obligation. It is an obligation
enforceable in equity, which rests on a person (the
trustee) as owner of some specific property (the trust
property) to deal with that property for the benefit of
another person (the beneficiary) or for the advancement
of certain purposes.
Corporate Law: Law principles and practice
Trusts
A trust is not a separate legal entity like a company, and
is not created through a contractual relationship between
all the parties to the trust.
A contractual relationship may exist between the trustee
and the settlor, but the beneficiaries of the trust have no
contractual rights in the creation or enforcement of the
trust.
Rights and obligations of the different parties to a trust
arise under the law of equity. A trustee can be both a
settlor and beneficiary (at least, one of the beneficiaries).
Corporate Law: Law principles and practice
Parties to the trust
There are three parties to a trust:
•
•
•
The settlor is the person who creates the trust (also
called the creator or donor). If a trust is created
unintentionally, as in a situation of an implied,
constructive or resulting trust, there will be no settlor.
The trustee is the person to whom the trust property
is vested or transferred. For an express trust, a
specific trustee is nominated.
The beneficiary is the person (or persons) who
benefits under the trust, and is known as the cestui
que trust.
Corporate Law: Law principles and practice
Parties to and elements of a trust
The subject matter of the trust is the trust property. This
can be tangible or intangible property, personal or
otherwise.
The trust property can be a chose in action or possession.
It can be legal or equitable property. It can be land,
shares, money, and the like.
To create an express trust, there will be a trust instrument
known as the ‘deed of trust’ or ‘deed of settlement’. It is
the document by which the settlor vests the trust
property into the hand of the trustee, and it also sets out
the rights and obligations of the parties to the trust.
Corporate Law: Law principles and practice
Types of trusts
Express trusts are created according to the express and
intentional declaration of the settlor. They are:
•
Discretionary trusts: the trustee is given discretion in
relation to the operation of the trust (e.g. who the
beneficiaries are, how much they get).
•
Fixed trusts: the trustee does not exercise any
discretion regarding the interest or portion the
beneficiary will take.
•
Executed and executory trusts: in an executed trust,
the intentions of the settlor have been completely
declared so that the trustee’s main duty is to carry out
the terms of the trust.
Corporate Law: Law principles and practice
Types of Trusts cont …
•
•
Bare and special trusts: a simple trust that is used
as a repository for holding property or assets and has
no active duties apart from vesting its property in the
hand of the beneficiaries.
Constituted and incompletely constituted trusts: a
trust is incompletely constituted when the trust
property as not completely vested in the trustee.
Corporate Law: Law principles and practice
Types of Trusts cont …
Non-express trusts are created without any express and
intentional declarations or communications by the settlor
but arises by the operation of law.
Non-express trusts include:
•
•
Implied or presumptive trusts: there is an implied
intention on the part of a person to create a trust in
respect of a particular trust property.
Resulting trusts: an implied trust in which the
interest in the property returns to the trust creator.
Corporate Law: Law principles and practice
Types of trusts cont …
•
•
Constructive trusts: arise out of the operation of law
because it would be inequitable to allow a person to hold
the property or interest for themself. Constructive trusts can
be used in the following situations:
• in de facto relationships
• when there is a fiduciary relationship
• when an outsider or stranger to a trust profits by getting
involved in trust
• when a stranger receives and deals with trust property
in breach of trust
• when vendors hold land as constructive trustee for the
purchaser.
Public and private trusts: can be for private individuals
and or the benefit of the public.
Corporate Law: Law principles and practice
Aspects of a trust
Fiduciary relationship
A trust creates a fiduciary relationship between the trustee
and the beneficiary. The trustee is required to exercise
rights and powers, and act in good faith and in the
beneficiary’s interest.
Legal requirements for creating a trust
Certain legal formalities must be complied with to make a
valid trust. These are based on the English Statute of
Frauds 1677, the Wills Act 1837 and the Property Law
Act of each state. Certain transfers of property must be
evidenced in writing.
Corporate Law: Law principles and practice
Aspects of a trust cont …
Life and continuity of trusts
Trust property is vested in the hands of the trustee.
Whether it is a body corporate or a natural person, if the
trustee dies another trustee can be appointed. A trust does
not have perpetual succession and under the rule against
perpetuities, the life of a trust must not exceed 80 years.
Trustee companies
Trustee companies are governed by specific legislation in
each state or territory jurisdiction. Legislation specifically
names the trustee companies to which it applies. Trustee
companies can act as executors and administrators of
deceased estates, and provide management, mortgage
financing and similar services.
Corporate Law: Law principles and practice
Trustee’s duties
A trustee has well-established duties imposed upon them
by the law of equity and the legislation. The main duties
are to maintain and improve the trust property for the
benefit the beneficiaries. Some of the trustee’s duties are
as follows:
•
Being familiar with the trust document and ensuring
the economic wellbeing of the trust property for the
beneficiaries. The trustee must comply with the law on
authorised trustee investments. The trustee must make
responsible and prudent investments with due care and
diligence.
Corporate Law: Law principles and practice
Trustee’s duties cont …
•
•
•
•
The trustee has a duty to act bona fide and in good faith
in the interest of the beneficiaries. This means they
have an obligation to avoid conflicts of interest and not
profit from their position.
The trustee has a duty to keep accounts and provide
information to the beneficiaries.
The trustee has a duty against delegation and the trustee
must act in person, subject to certain exceptions.
The trustee has a duty of care, loyalty, impartiality and
fairness.
Corporate Law: Law principles and practice
Liability of trustee
•
•
•
•
The trustee has no separate entity from the trust
itself; the trustee is the legal owner of the trust
property.
Trustees are personally liable for all debts of the
trust, though they can seek indemnity from the trust
assets for legitimate expenses (perhaps with a clause
in the deed).
A trustee has the right to seek reimbursement for
liabilities and expenses incurred in the proper
administration of the trust.
The trustee will also need to pay any tax liable on the
trust if there is no beneficiary entitled.
Corporate Law: Law principles and practice
Trading trusts
In a trading trust, a business and its goodwill and assets
are transferred to the trustee, either on the death of the
trader or during their lifetime. The business is then
conducted by the trustee for the trust and its beneficiaries.
Tax is imposed only on the trustee or on the beneficiary
and not on both. However, with the introduction of the tax
imputation system, which removed the double taxation
imposed on the company and shareholders, the advantage
for trusts has been diminished.
Corporate Law: Law principles and practice
Winding up of trusts
A trust can be wound up in three ways:
•
•
•
by the release or variation of trust obligations by
beneficiaries or the court
by revocation of the trustee powers
by a court order.
If the trustee is a company, the trust may be wound up in
accordance with the Corporations Act 2001 (Cth).
Corporate Law: Law principles and practice
Types of business trusts
Unit trusts: collective and managed investments
A unit trust is set up under a deed of trust, whereby ‘capital’
is invested or contributed by unit holders (investors,
subscribers or beneficiaries). The units are of equal size so
the number of units held determines the entitlement of the
unit holder to an annual distribution of net income and to
their interest in the assets of the trust.
• Fund managers make the investment decisions.
• The amount of capital contribution can be relatively
small.
• The units generally provide fixed annual entitlement to
income.
• The units represent a fixed entitlement to capital.
• Unit holders have proprietary interest and right in the
assets of the trust.
Corporate Law: Law principles and practice
Public unit trusts
Public unit trusts are defined by the Income Tax
Assessment Act 1997 (Cth) and are designated as such if
the units are:
•
•
•
listed for quotation on the stock exchange
held by more than 50 people
are offered to the public.
If a trust is classified as a public trust, it is treated as if it
is a company and will pay company tax on dividends.
Corporate Law: Law principles and practice
Franchises
A franchise is a contractual arrangement between separate
business proprietors whereby the franchisor allows another
individual (or individuals), the franchisee, to sell or
distribute goods and services that were created, registered or
marketed under some scheme by the owner, the franchisor,
of the original idea.
Franchises can take a number of forms, including:
• product franchises—the franchisee acts as a distributor
using the franchisor’s trademarks, goods and services
• product manufacture franchises—the franchisee buys the
know-how, and/or the ingredients for the manufacturing
of a product
• system franchises—the franchisor sells to the franchisee
an entire system for the carrying on of a business to sell
good and services.
Corporate Law: Law principles and practice
Business Organisations
Different business organisations (entities) suit different types
of businesses. Consider:
•
•
•
•
whether the business is designed for profit making or for
another purpose
the complexity of a business entity (a company being the
most complex)
the risks attached to the owners and operators of the
enterprise
other factors such as taxation and regulation of an entity.
Corporate Law: Law principles and practice
Non-Corporate Business Organisations
Non-corporate business organisations are business entities
which are not companies.
Sole traders
A ‘sole trader’ is an individual undertaking a business
activity or enterprise for profit.
Corporate Law: Law principles and practice
A sole trader’s characteristics
No separate
legal entity
exists from
the owner
An enterprise
conducted by
a natural
person
Unlimited
personal
liability
Sole
Trader
Limited
access to
capital
Responsible
for
management
and risk
Corporate Law: Law principles and practice
Other characteristics of a sole trader
•
•
•
A sole tradership often has a limited life because it
depends on the owner.
The owner operator pays tax because of a lack of a
separate entity.
A sole tradership is the riskiest form of business.
Corporate Law: Law principles and practice
The law applying to Sole traders
Sole traders are the least regulated form of enterprise entity.
•
•
Sole traders must pay tax (personally).
Licence requirements, name registrations (Business
Names Act), GST and ABN registration may be required,
and consumer legislation may apply where goods and
services are provided.
Corporate Law: Law principles and practice
Associations
Unincorporated Associations
An unincorporated association may be formed by two or
more persons to promote some interest, either for public
or private purposes.
An unincorporated association may be a religious body,
sporting body, cultural organisation or educational body.
An unincorporated association is not recognised as having
any particular legal entity existing separately from its
members.
Corporate Law: Law principles and practice
An unincorporated association’s characteristics
No separate
legal entity
exists from
the owner
An enterprise
conducted by
a natural
person
Unlimited
personal
liability
Unincorporated
Association
Limited
access to
capital
Responsible
for
management
and risk
Corporate Law: Law principles and practice
Unincorporated Associations cont …
An unincorporated association is basically a group of
people who form a club or society, but, having no
registration, are not recognised as having any legal entity.
Having no recognised entity, unincorporated associations
cannot own property or enter into contracts, nor sue on
behalf of a recognised entity.
Cameron v Hogan (1934) 51 CLR 358
Corporate Law: Law principles and practice
Unincorporated Associations cont …
Due to a lack of legal status, unincorporated bodies have
certain legal limitations, such as:
•
•
an inability to accept a gift or a bequest (with some
exceptions) (Leahy v Attorney-General (NSW) [1959]
2 All ER 300 (PC); Bacon v Pianta [1966] ALR 1044)
an inability to hold property and enter into contracts or
leases (though trustees might be appointed to
overcome this) (Freeman v McManus [1958] VR 15;
Carlton Cricket and Football Social Club v Joseph
[1970] VR 487).
Corporate Law: Law principles and practice
Liability of committee members
Because of a lack of legal entity, the committee or
managers may find themselves personally liable for
contracts made on behalf of the unincorporated
association.
Bradley Egg Farm v Clifford [1943] 2 All ER 378
Peckham v Moore [1975] 1 NSWLR 353
It is quite difficult to bring a legal action collectively
against an unincorporated association, though there are
some exceptions.
Bailey v Victorian Soccer Federation [1976] VR 13
Corporate Law: Law principles and practice
Legal requirements of franchising
Franchising is regulated in Australia by the Franchising
Code of Conduct under the Competition and Consumer
Act 2010 (Cth) and the Australian Consumer Law, as
well as through the law of contract (e.g. the area of
obligations, undue pressure and unconscionability).
Consumer Law prohibits:
• unconscionable conduct (ss 20–22)
• misleading conduct (s 18)
• false representations (ss 29–38).
Corporate Law: Law principles and practice
Legal requirements of franchising cont …
The franchisor must disclose certain relevant information
to the franchisee prior to entering into a contract to
purchase a franchise under the Franchising Code of
Conduct (e.g. marketing information, earnings and market
area).
Corporate Law: Law principles and practice
Cooperatives
A cooperative is a collection of individuals who join a
trading enterprise designed to give each member special
benefits rather than merely a share of profits.
Cooperatives are formed under special state legislation,
which is generally uniform throughout Australia.
Members of a cooperative have limited liability and
must comply with some regulations, such as conducting
an annual audit.
Corporate Law: Law principles and practice
Business names
When an individual or a business entity wishes to trade under a
name other than the name of the individual or entity, there is a
requirement to register under the Business Names Act of the
particular state or territory jurisdiction.
A business chooses and registers its name. The certificate of
registration must be conspicuously displayed in the principal
place of business and the name must be renewed every three
years.
The National Names Index (NNI) is an index of Australian
business and company names registered within the states and
territories. It is administered by ASIC and provides free access
to information on Australian Business Numbers, Australian
Company Numbers and Australian Registered Body Numbers.

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