Introduction to Corporate World

Corporation Act 2001 is a regulation which binds business entities into legal obligations and duties. It is  important for the organisations to abide by the each of the provisions of the act and also respect the rights of the investors . This act is primarily regulated in Australia to protect the rights of the investors in the corporate world. In every business, satisfaction of customer is essential and to provide that satisfaction there must be some guidelines and rules which much be introduced by the government so that everyone can apply those rules. One of the extremely important subject which s being focused upon in today's world is that of Corporate Governance. It has been characterized as the medium through which the performance of any corporate can be enhanced . A highly essential and instrumental role is played by the directors as well as other authorized persons of any company. One of the many duties and responsibilities imposed upon the director is to make effective disclosures, as stipulated under the act or by the regulatory authorities. The rationale behind imposition of this obligation to ensure that the company is operating in a fair manner and the interests of the investors are not getting hampered.

Question 1

What is company constitution?

Since 1998, every country is in need of constitution so as as Australia with a update on companies. Taking such concern about organization, a proper set of rules and regulation is being established known a company’s Constitution which will comprise of Memorandum of Association and Article of Association . These rules are generated in order to operate business entities.

As per the business environment,  there are so many business activities carried out in the organization and in order to operate each of the firms in a smooth manner adherence to the provisions of the act is a necessity. The corporation act 2001 covers some laws which are related to other business entities such as partnerships and some of the managed investment schemes and other laws. It is mandatory for every business to follow rules which the government has implemented to ensure maintenance of fairness and justice in the market. There are many guidelines which help in setting new organizations as this is also mentioned in the corporation act 2001 for the Australia. It is mandatory under the legislation to register a corporation before it could commence its operations in the nation. The registration process includes all data about the company the name, details about the employee, name of the directors and lastly, the names of the all the investors . The listed companies of the nation are required to make the disclosures in order to update the market as well as the investors. The information which is disclosed is considered to pose a material effect on the value of the securities of the concerned entity. Corporation act 2001 describes the rights of the employee and employer and also describe about the right of the investors which shall necessarily be protected. Corporation act 2001 discusses about provision that some power shall granted to the authority to deal with the employee and other members of the company.

For example board of director have some absolute power to take decision in the respect to the matters of the company. There are many provisions which shall describe some Powers as per the act. As per the corporation act 2001, section 700(4) governs the situation wherein the securities are received from a foreign nation. In such a situation the management of the company is required to make all the stipulated disclosures. The need to insert disclosure provision in the act is to protect company from any kind of Global crisis which will effect the economic position of a company  . For an example it has been seen that Lehman Brother wen into serious financial crisis because there was no proper disclosure of provision to investor. Disclosure shall provide transparency and shall not to form, any sort of ,misrepresentation between the parties. So purpose of disclosure is very clear among to business organization regarding making offer to investors regarding.

The provision disclosure define the action which discloses all the relevant information about the securities which are important. This in turn ensures that the investors of the company are constantly updated about all the information which interests them or affect their rights in the corporate.  Further, Section 704 provides for making the requisite disclosures to the investors, in the event of offer of securities. Section 727 has imposed a strict obligation on all the corporates to essentially make a disclosure before offering securities in the market for sale. As per this act there are some restrictions also mention in this act.

Under section 734 of corporation act 2001 explain about the restriction which impose on the advertisement of the company and that shall be decided by the board of the company that give some kind so benefit to company. The corporation act apply some restriction to be applied on the document which has to show or which are not need to show that depend upon the type of the document. Some documents need to disclose when the offer has been made to investor before he invest into the company that is his right to know about the company for the example the prospectus of the company and the revenue model of the company and the all the information statement need to disclose that all explain in the section 709 of the corporation Act. section 709 also explain about the offer which made between the company and the investor all the terms and the conditions should mention in this company can hide there some secrete like the product which they use in making the goods but not the information which a inventor must know about the company.

Corporation act 2001 section 707 sub section (1) is all about the offer which is made between the investor and the company for some specif sale of the products and the sub section(2) explain about the the offer of the body’s control. Further, section 671B(1) of the act imposes an obligation on the persons making acquisition of more than 5% shares in listed company .The said disclosure shall be made within a period of 2 days and also make a copy of the same available to Australian Securities Exchange (ASX). Such shareholders are termed as substantial shareholders and disclosure of their acquisition enables the investors to stay informed about the movements of the company. This provision is particularly helpful in the case of takeovers and mergers. In light of these provisions it can be stated that the disclosure provisions of the Corporation Act are completely balanced in nature to keep the investors as well as the market players to stay updated.

Balancing the interests of the investors is one of the prime concerns of ASIC and the same is clearly reflected in the manner the disclosure provisions have been designed. To bring the equal balance between the inventor and company there should be the transparency of the offer and about the inner information of the company that maintain the balance between two of them. when both the parties sign an agreement then both the parties must have the required knowledge about the sale controlling body then the key principle has to disclose and also all the documents related to it. The investor of the company is important because that give the monetary support to the company for his own profit and he or she also take some share of the company for the profit but for this he has right to know that what is the actual position of the company that’s why it is important to disclose the document between the both the parties . According to the various laws in the cooperate law it is very important to maintain the transparency between both the parties so that it shall bring no confusion remain.

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It is very essential that all the information must be produced in a clear manner as it will lead various other consequences for an example it the information is being clear in the mind of a person or an investor then he will be able to quote an offer well. If the disclosure of the document is important because if that will be in proper manner than there will be least chances of the legal issues arise. If company later faces these issue that will not good for the company good will . Sometime it has been seen that while inventor is investing money in the company than certain clause if which are not clear in inventors mind than the offer will not execute in the same manner which was planed by both the parties  Such confusion in the making shall leads to beach and rise in liability against corporation act.

If the act is disclose later than the legal issue arise between both the parties than company need to pay the penalty which will be imposed for the breach of the provision for not disclosing the document regrading investment. If party hide the facts that result into such legal liabilities which both the parties need to handle and that give a negative affect on the company reputation .The directors of the company are imposed with the full responsibility in respect to the disclosure requirements. For instance Section 286 pertains to disclosure of financial records, and violation of the same shall be considered as a strict liability offense. In addition , the directors are made liable under section 344(1) if they fail to abide by the stipulated compliances under 2M.2 and 3. A director shall be regarded to abide by all the provisions of the act if he has undertaken reasonable efforts to comply with the disclosure requirements. The purview of reasonable efforts include recruitment of staff which is competent to undertake the procedure, and a similar opinion was held in ASIC v. Fairlie (1993). As mentioned earlier the general disclosure obligation is imposed on the director, and in the vent the director fails to abide by any of the provisions in relation to disclosure, section 674 (2) shall be contravened. It has been opined by the courts in various judgments that contravention of section 674(2) by the company shall be considered as contravention on the part of the director.

In addition section 180 can come into play which requires the director to discharge their responsibilities in a reasonable manner and with a degree of diligence . Section 180 can also be applied on those who are occupying the office with similar responsibilities. The case of James Hardie Industries NV v. ASIC (2010) scrutinized the law under section 674 and propounded for an objective test. It was held that the directors and other officer s of the company are not entitled to determine the materiality of an information in respect to disclosure under section 674. Further in case of ASIC v. Fortescue Metals Group Ltd. (2001) or the Fortescue Metals Case it was opined by the court that an acute responsibility has been imposed on the director to ensure that an effective and efficient mechanism is established in the company to stay in compliance with the disclosure requirement . A culture of compliance shall be promoted by each one of them as observed by ASIC v. Chemeq (2006).

In addition section 180 can come into play which requires the director to discharge their responsibilities in a reasonable manner and with a degree of diligence . Section 180 can also be applied on those who are occupying the office with similar responsibilities. The case of James Hardie Industries NV v. ASIC (2010) scrutinized the law under section 674 and propounded for an objective test. It was held that the directors and other officer s of the company are not entitled to determine the materiality of an information in respect to disclosure under section 674. Further in case of ASIC v. Fortescue Metals Group Ltd. (2001) or the Fortescue Metals Case it was opined by the court that an acute responsibility has been imposed on the director to ensure that an effective and efficient mechanism is established in the company to stay in compliance with the disclosure requirement . A culture of compliance shall be promoted by each one of them as observed by ASIC v. Chemeq (2006).

Conclusion

As per the above discussion it shall be concluded that corporation act 2001 protect the rights of company and give protection investor. It is very important for the company and for the investor to disclose all the documents related to offer that maintain the transparency between the parties. If the proper documents were not disclosed than later legal dispute arise between the parties and that give diverse affect to company’s reputation. This project shall describe about the related provision and section of the corporation act 2001. The project discuss about the liability if proper disclosure of the document is not be done by the company.

References

  • Audretsch, D. and Lehmann, E.E, (2011) Corporate governance in small and medium-sized firms. Edward Elgar Publishing.
  • Bainbridge, S, (2015) Corporate Law. West Academic.
  • Bebchuk, L.A and Weisbach, M.S, (2010) The state of corporate governance research. Review of Financial Studies 23(3)
  • Carroll, A.B and Shabana K.M, (2010) The business case for corporate social responsibility: A review of concepts, research and practice. International journal of management reviews 12(1)
  • Friedman, L.M, (2011) Contract law in America: a social and economic case study. Quid Pro Books.
  • Horrigan, B, (2010) Corporate social responsibility in the 21st century: Debates, models and practices across government, law and business. Edward Elgar Publishing.
  • Lan, L.L and Heracleous, L., (2010) Rethinking agency theory: The view from law. Academy of management review 35(2).
  • Law  R, Qi, S and Buhali, D., (2010) Progress in tourism management: A review of website evaluation in tourism research. Tourism management 31(3).
  • Law P., (2011) Corporate governance and no fraud occurrence in organizations: Hong Kong evidence Managerial Auditing Journal 26(6).
  • Lindgreen, A and Swaen, V, (2010) Corporate social responsibility. International Journal of Management Reviews.
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