Chapter 3 MANAGEMENT

Introduction A company is an artificial legal entity that requires natural persons to act as its ‘mind’, to manage company business and act on its behalf, These persons are the company’s directors. The ownership of a company vests in the members or shareholders upon formation of the company.

General Meetings Members in a general meeting may either; change the management powers given to the board; or change the composition of the board itself.   What the members cannot do is interfere with any management decision made by the board, even if a board decision is against the wishes of a majority of the members.

Corporate Governance Corporate governance is the system by which companies are directed and managed. It represents a set of relationships between a company’s management, its board, its shareholders and other stakeholders such as creditors. Effective and accountable company management depends upon the proper exercise of power and the fulfilment of legal obligations by directors, company secretaries and other company officers.

Directors A director is someone acting in highest level management rather than as an expert, professional advisor or an employee. The definition of director makes clear that it includes those people who practically exercise the powers of a director even if they are not appointed as directors.

Types of Directors Nominee director Executive director Non-executive director   Managing director

Role of the Board of Directors The board has the following responsibilities and functions;   to set policy and formulate strategy to monitor the implementation of policy to review the company’s progress towards attaining its goals; to provide accountability to shareholders and members; to elect, evaluate and dismiss principal executive officers; and to carry out any statutory functions Management responsibilities may be further delegated to one or more committees of directors or to a managing director, often referred to as the chief executive officer or CEO.

Removal of Directors Proprietary Company The members in general meeting have the power to remove a director and appoint a replacement pursuant to s203C (replaceable rule). Public Company The members in general meeting of a public company may remove a director of the company despite;  (a) anything contained in its constitution (if any); or (b) any agreement between the company and the director; or (c) any agreement between shareholders and the director

Disqualification of Directors Both ASIC and the courts have broad powers to disqualify directors. It is an offence for a person who is disqualified from managing a corporation to participate subsequently in the management of a corporation without being granted leave to do so by ASIC.  S206B protects the public by preventing a person from acting as a company director for a period of 5 years they have been convicted of certain criminal offences.

Company Secretary The company secretary generally completes administrative tasks for the company and the directors including: taking minutes of directors’ and members’ meetings, maintaining the company register and, completing and lodging ASIC forms.

Appointment of company secretary A proprietary company is not required to have a secretary but, if it does have one or more, at least one of them must reside in Australia.   Every public company must have at least one company secretary, at least one of which must reside in Australia. They must: be at least 18 years of age. consent in writing to their appointment notify ASIC within 28 days of the appointment. A company secretary does not have the right or power to cast a vote at a meeting of directors.

Remuneration of Directors Directors are not entitled to any remuneration from the company unless it is specifically provided for in the company’s internal rules. The internal rules normally provide members with the power to decide upon the remuneration of directors.

Directors’ Meetings A director may call a directors’ meeting by giving reasonable notice to every other director individually to ensure each director has a reasonable opportunity to participate in the meeting. Unless the directors determine otherwise, the quorum for a directors’ meeting is 2 directors and the quorum must be present at all times during the meeting.   A quorum is the minimum number of directors who must be present at a meeting to allow the meeting to be properly held.

Material Personal Interest S191(1) provides that a director of a company who has a material personal interest in a matter that relates to the affairs of the company must give the other directors notice of the interest. If a director contravenes s191 the court can order the director or pay a fine of up to $1,100 or be imprisoned for up to three months or both. To be material, the nature of the interest should have the capacity to influence the vote of the particular director and must be of a real or substantial kind.

Membership Generally members are the shareholders of a company. The Act provides that every company must have at least one member – s114. A proprietary company is allowed to have a maximum of 50 non-employee members. There is no maximum for a public company.

Membership a person may agree to become a member after the company is registered either because they have; taken up qualification shares applied for and received an allotment or issue of shares accepted a transfer of shares, received the share by transmission on the death, incapacity or bankruptcy of a member exercised an option over shares or converted convertible notes into shares

Register of Members All companies must keep a register of their members at the company’s registered office or its principal place of business.

Annual General Meeting A public company must; Hold an AGM within 18 months after is registration. Hold an AGM at least once in each calendar year and within 5 months after the end of the financial year. An AGM is to be held in addition to any other meetings held by a public company in the year. The following reports must be presented by the directors at the AGM; the financial report the directors’ report the auditors’ report For the last financial year that ended before the AGM.

Annual General Meeting further business of the AGM may include the following:  the election of directors the appointment of the auditor the fixing of the auditor’s remuneration

General Meeting of Members The general meeting of the members of a company is an essential part of the running of the company and is any meeting of the company’s shareholders that is not an AGM. At a general meeting, members may vote on resolutions such as; the appointment and removal of directors. a reduction in the company’s share capital. the voluntary winding up of a company. Members with at least 5% of the votes that may be cast at a general meeting of the company may call and arrange to hold a general meeting.  

Notice Notice of a meeting of members must be given in writing to every member entitled to vote at the meeting and to each director and auditor. At least 21 days notice must be given for a meeting of members of a company other than a publicly listed company. At least 28 days notice must be provided for a publicly listed company.

Voting at a Members’ Meeting A resolution put to the vote at meeting of a company’s members of a company with share capital must be decided on a show of hands unless a poll is demanded.