1. The company’s internal rules

2. A company must have internal rules
Corporate Law: Law principles and practice
A company must have internal rules
A company like any organisation must have rules for the way in which it operates, ie to hold meetings, procedures to pass resolutions and the interaction of the management.
A company can have either:
A company constitution; or
Adopt the replaceable rules from the Corporations Act; or
A combination of both replaceable rules and a company constitution
S 134 of the Corporations Act

3. Matters such management and administration requires rules as to:
Corporate Law: Law principles and practice
Internal management
Matters such management and administration requires rules as to:
Appointment and removal of officers
Procedures relating to directors
Members meetings
Members rights and obligations

4. Are rules found in sections throughout the Corporations Act
Corporate Law: Law principles and practice
Replaceable Rules
Are rules found in sections throughout the Corporations Act
Some are mandatory, most are optional
There are some differences between proprietary and public companies
Can be displaced by a company adopting its own rules or constitution: s 135(2)

5. Corporate Law: Law principles and practice
Note
A proprietary company can restrict the transfer of shares, a public company is not permitted to do this
A public company is not permitted to displace the rule that a member can appoint a proxy to attend a meeting on their behalf

6. Unincorporated Associations
Corporate Law: Law principles and practice
The Replaceable Rules
The 39 replaceable rules are found in s 141 and refer to other sections found throughout the Act, a section will indicate its a replaceable rule in brackets
Unincorporated Associations
An unincorporated association may be formed by two or more persons to promote some interest, either for public or private purposes.

7. Corporate Law: Law principles and practiceOf 1
Voting and completion of transactions--directors of proprietary companies
194 2
Powers of directors
198A 3
Negotiable instruments
198B 4
Managing director
198C 5
Company may appoint a director
201G 6
Directors may appoint other directors
201H 7
Appointment of managing directors
201J 8
Alternate directors
201K 9
Remuneration of directors
202A 10
Director may resign by giving written notice to company
203A 11
Removal by members--proprietary company
203C 12
Termination of appointment of managing director
203F 13
Terms and conditions of office for secretaries
204F
Inspection of books 14
Company or directors may allow member to inspect books
247D

8. Corporate Law: Law principles and practice
Non-compliance with the replaceable rules is not of itself a breach of the Act: s 135(3).
Breaches of the replaceable rules do not give rise to civil or criminal liability, or entitlement to statutory injunctions under the Act.

9. The constitution may be adopted when:
Corporate Law: Law principles and practice
The constitution
The company’s constitution (if any) is a document that sets out rules governing all or only some of the matters that may be covered by the replaceable rules, resulting in the latter being respectively displaced or modified.
The constitution may be adopted when:
• a new company is formed ( s 136(1)(a)); or
• a company without a constitution adopts one (s 136(1)(a)); or
• a court order is made requiring the company to adopt one (s 136(1)(b)).

10. Liability of committee members
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: with some exceptions: Bailey v Victorian Soccer Federation [1976] VR 13

11. Liabilities of members
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

12. Adoption of a constitution
Corporate Law: Law principles and practice
Adoption of a constitution
Prior to July 1998, companies were required to have a constitution consisting of a memorandum of association and articles of association. Some companies retain this as a constitution.
Historically the memorandum was a superior document, but under the Corporations Act no distinction is made between the two components, so that there is only one constitution.
Companies formed after July 1998 can choose a constitution, replaceable rules, or both: s 134.

13. Corporate Law: Law principles and practice
Objects clause
Historically up to 1984, every company was required to have an objects clause in its constitution – this requirement has been abolished.
A company can still choose to restrict the company’s business engagements and activities: s 125(1).
However no action which violates the company’s objects clause will be considered ‘ultra vires’ ( beyond its powers).
There is no ‘constructive notice’ that a company will not be bound by the actions of its officers. A contract contrary to a company’s constitution will be binding: s 125(2).

14. • issue and cancel shares (except companies limited by guarantee)
Corporate Law: Law principles and practice
Legal capacity
A company has features of both a natural person and a legal person: s 124 (1) a company is capable of engaging in any business or activity, including entering contracts.
A company has some further powers that are not applicable to natural persons (S 124(2)):
• issue and cancel shares (except companies limited by guarantee)
• issue debentures
• grant a floating charge over the company’s property.

15. Some companies are required to have a constitution, eg
Corporate Law: Law principles and practice
Some companies are required to have a constitution, eg
Guarantee company (setting out the amount guaranteed)
No liability company (stating they are for mining purposes only)
Listed public companies (undertaking to comply with ASX rules)

16. (where the shareholder is also the director)
Corporate Law: Law principles and practice
One person companies
(where the shareholder is also the director)
Replaceable rules do not apply. The company may, but is not required to have a constitution: s 135(1)
The Corporations Act applies a number of basic rules:
• the business of the company is to be
• the director is to be paid any remuneration resolution: s 202C

17. Legal effect of internal management rules
Corporate Law: Law principles and practice
Legal effect of internal management rules
Under s 140(1), the constitution and replaceable rules that apply to a company have effect as a contract between the following parties:
• the company and each member ( s 140(1)(a))
• the company and each director and company secretary ( s 140(1)(b)); and
• a members and each other member (s 140(1)(c))

18. The constitution and/or the replaceable rules
Corporate Law: Law principles and practice
The constitution and/or the replaceable rules
Forms a statutory contract between the company, members and officers (which includes directors)
The company can enforce rules against members: s 140(1)(a) Hickman v Kent or Romney March Sheep-Breeders

19. Members’ right to enforce the constitution
Corporate Law: Law principles and practice
Members’ right to enforce the constitution
Members cannot enforce provisions in the constitution that appear to confer rights on them in some capacity other than as a member.
Eley v Positive Government Security Life Assurance Co
Only members can enforce the company’s rules
Forbes v NSW Trotting Club Ltd

20. Limits on the right to alter the constitution
Corporate Law: Law principles and practice
Limits on the right to alter the constitution
Restrictions exist under statute and common law when changing a company constitution
an ‘entrenching provision’, that involves a restriction in the constitution elevating the required level of shareholder support beyond that required for a special resolution, for example, by requiring a greater majority than 75%, or requiring the consent of a particular person: s 136(3)

21. • that require the member to take up additional shares;
Corporate Law: Law principles and practice
Another limitation is that a member is not bound by certain changes to the constitution after becoming a member unless these are agreed to in writing, ie:
• that require the member to take up additional shares;
• that increase the member’s liability to money to, the company; or
• that impose of increase a restriction on the right to transfer shares already held by the member s 140(2)

22. Alteration of class rights
Corporate Law: Law principles and practice
Alteration of class rights
If a company’s share capital is divided into different classes of shares, such as ordinary and preference shares within the company’s constitution then the majority shareholders cannot modify the constitution to cancel or vary existing class rights without a special resolution of both the company in general meeting and the holders of the affected class: s 246B.
Members may still have the option of applying to the court for a remedy under s 232 if the majority votes are contrary to the interests of the members as a whole, oppressive, unfairly prejudicial, or unfairly discriminatory to members.

23. Common law restrictions on changing the constitution
Corporate Law: Law principles and practice
Common law restrictions on changing the constitution
Where a change to the constitution involves expropriation, the majority shareholder would need to prove that it was both for a proper purpose and was fair in all the circumstances:
Gambotto v WCP Ltd (1995)

24. The Company’s Relations with Outsider
Corporate Law: Law principles and practice
A company must act through its agents, since a company is a fictional legal being. Agents include directors, officers, employees and other official agents who may be engaged from time to time by the company. Historically a company could only make contracts by placing the company seal on a contractual document according to its constitution. Changes to the law now allow a company to make a contract without the company seal s 126(1) - as long as the agent, employee or authorised person acts with the authority of the company.
The Company’s Relations with Outsider
A company acts through its agents, a fictional legal being.
Agents include directors, officers, employees and other official agents A company does not require a company seal s 126(1) to execute a binding contract- as long as the agent, employee or authorised person acts with the authority of the company.

25. Corporate Law: Law principles and practice
Under s126(1) an individual acting with the company's express or implied authority can make, vary, ratify or discharge a contract on behalf of the company.
Note that officers, managers and directors will have powers conferred by the company constitution (or replaceable rules).

26. The doctrine of ultra vires has been abolished:
Corporate Law: Law principles and practice
The doctrine of ultra vires has been abolished:
no act of the company is invalid merely because it is contrary to or beyond any restrictions or prohibitions in the company's constitution, e.g. promises, agreements or contracts that might be contrary to the company constitution. s 125(2)
an outsider is now generally able to assume that any person acting on behalf of the company has appropriate authority and acts within the constitution: s129
The holding of a constitution by ASIC has will not be constructive notice: s130.

27. Authority of Company’s agents
Corporate Law: Law principles and practice
Authority of Company’s agents
A company will be bound by the acts of its agents just like any other principal. Agency law applies to companies. Agency law will bind the company by actual, apparent or ostensible authority.
Actual authority: may be express through writing or orally in the appointment or authorisation of an agent
Apparent or ostensible authority: is implied from the position a party holds, or by the use of a letterhead etc

28. The doctrine of Estoppel
Corporate Law: Law principles and practice
The doctrine of Estoppel
Applies to those appearing to have authority granted by the company or Board of Directors to act as an agent, directly or indirectly; and
where another relies on that principal’s representation; or
The company allows an agent to act in a particular position, allowing others to assume they have authority

29. The indoor management rule
Corporate Law: Law principles and practice
The indoor management rule
Common law determines that procedures undertaken inside a company, that only the company would know about, can be assumed to have taken place by an outsider, ie that the company complies with its own internal rules.
Royal British v Bank v Turquand (1856) 119 ER 886
This is now enshrined in s 129: an outsider is now generally able to assume that any person acting on behalf of the company has appropriate authority and acts within the constitution.

30. Statutory assumptions regarding agency
Corporate Law: Law principles and practice
Statutory assumptions regarding agency
A person who has dealings with a company can make certain statutory assumptions about company procedures and the people with whom they are dealing.
s 205B, 345 and 347: determines that a director or company secretary who appears on company returns is properly appointed and has the authority of a person in that position— - and properly carries out their duties.
•s 124: a company has the legal capacity of a natural person.

31. Corporate Law: Law principles and practice
s 125: abolishes the ultra vires rule even if the company acts contrary to its constitution.
•s 130: lodgement of documents, such as the company constitution, does not amount to constructive notice to the world at large
ss 123, 126 &and 127, a company is bound by a contract made on its behalf by a person acting as an agent.
S 130, a person acting with implied or actual authority can make, vary or discharge a contract on behalf of the company.

32. Corporate Law: Law principles and practice
ss 123, 126 &and 127, a company is bound by a contract made on its behalf by a person acting as an agent.
s130, a person acting with implied or actual authority can make, vary or discharge a contract on behalf of the company.
ss 128 & 129: an outsider can assume that a person appointed (even if defective) and performing a particular role in the company has the powers that would ordinarily be conferred on that office.

33. Corporate Law: Law principles and practice
s 128 outsiders who deal with companies can make the assumptions set out in s 129, and the company cannot deny any of these. An outsider is entitled to make specific assumptions.
An individual can make more than one assumption when dealing with a company
Brick and Pipe Industries Ltd v Occidental Life Nominees (1992) 10 ACLC

34. Statutory assumptions about agency
Corporate Law: Law principles and practice
Statutory assumptions about agency
S 129(1): a person who deals with the company can assume that the company'’s constitution and replaceable rules have been complied with.
•s 129(2): outsiders can assume that a person who appears from information supplied by the company, or from ASIC, to be a director or a company secretary are who they say they are.
An outsider can assume the officer has been properly appointed, - and has the authority to exercise the powers and perform the duties customarily exercised, or performed, by a director or company secretary of a similar company.

35. Corporate Law: Law principles and practice
s 129(3): outsiders are entitled to assume that any person presented as an officer or agent of the company has been properly appointed and has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent in a similar company.
•s 129(4): outsiders are entitled to assume that officers and agents of the company properly perform their duties to the company.
•s 129(5): when a company does not have a seal, - outsiders are entitled to assume that a document has been properly executed (according to constitutional procedures) if signed by the director(s) in accordance with s 127.

36. Corporate Law: Law principles and practice
s 129(6): when a company has a seal, - outsiders are entitled to assume that a document is properly executed (signed and, witnessed, and in compliance the company constitution)
if the company’s common seal appears to have been fixed to the document, according to s 127(2), and the seal appears to have been witnessed by two directors or the director and company secretary, in accordance with s 127(2);

37. Advance Bank Australia v Fleetwood Star Pty Ltd (1992) 10 ACLC 703
Corporate Law: Law principles and practice
s 129(7): outsiders are entitled to assume that an officer or agent of the company has authority to issue a document or certified copy of a document on its behalf and also can warrant the document is genuine or a true copy.
Advance Bank Australia v Fleetwood Star Pty Ltd (1992) 10 ACLC 703
Brick and Pipe Industries Ltd v Occidental Life Nominees (1992) 10 ACLC

38. Exceptions to the rules of s 129
Corporate Law: Law principles and practice
Exceptions to the rules of s 129
s 128(4), when an outsider knows or suspects that an officer, director or employee lacks authority, the outsider may not be able to rely on the assumptions of s 129 when, in fact, they were aware, or should have been aware, that an agent or employee was acting without authority.
Northside Developments Pty Ltd v Registrary General: (1990) 170 CLR 146
Pyramid Building Society v Scorpion Hotels Pty Ltd (1996) 14 ACLC 679

39. Should the outsider have made further inquiries?
Corporate Law: Law principles and practice
Should the outsider have made further inquiries?
Bank of New Zealand v Fiberi Pty Ltd. [1994] 12 ACLC 48
Lyford v Media Portfolio: (1989) 7 ACLC 271

40. Authority of the company director
Corporate Law: Law principles and practice
Authority of the company director
Where a director is under a duty of disclosure to the company, their knowledge is imputed to the company.
Hely-Hutchinson v Brayhead: [1968] 1 QB 549

41. Freeman and Lockyer v Buckhurst Park Properties [1964] 2 QB 480
Corporate Law: Law principles and practice
Freeman and Lockyer v Buckhurst Park Properties [1964] 2 QB 480
For ostensible authority to arise from an agent with no actual authority, there had to be the following conditions:
a representation that the agent had authority
•a representation made by someone with actual authority
•an outsider had been induced by the representation to enter into the contract
•the contract  agent was permitted by the company’s constitution to enter into a contract.

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