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Avoid the Hustle

Explain to James and Lulu the procedure by which Wonder Taste Pty Ltd can be ‘formed’ or set up and why it will be a ‘proprietary’ and ‘limited’ company
Assignment problem

James and Lulu, two young businessmen, plan to form a proprietary limited company to operate a restaurant. The company is to be called ‘Wonder Taste Pty Ltd’ (‘Wonder Taste’).

Question 1: Explain to James and Lulu the procedure by which Wonder Taste Pty Ltd can be ‘formed’ or set up and why it will be a ‘proprietary’ and ‘limited’ company? 20marks

On 22 February 2013, James entered into a contract with Good Beans Pty Ltd to purchase 10 kilos of coffee beans. He executed the contract in the name of ‘Wonder Taste Pty Ltd’. On 24 February, the proposed company was registered. The company did not adopt a constitution and had a common seal. James and Lulu each took 50% of the issued capital, and both were appointed as directors. Because of a dispute between James and Lulu regarding the contract with Good Beans Pty Ltd, this contract was not ratified by Wonder Taste until 30 March..

Question 2: By 30 April, the coffee beans supplied by Good Beans Pty Ltd had been delivered to Wonder Taste but not paid for. Explain who may be liable to pay for them and why. 25marks

On 2 May, James ordered a coffee machine from Power Pty Ltd (‘Power’). James affixed the company seal and signed the contract twice in his own name as a director.

Question 3: Explain what assumptions Power are entitled to make and why? 15marks

Question 4: Explain whether (and if so, how) the assumptions Power are entitled to make in the scenario in Question 3 would be different if Wonder Taste did not have a company seal and James had signed the contract twice, once in his own name and once in Lulu’s name? 15 marks

Question 5: Explain whether (and if so, how) your advice would have been different if Power had suspected something was wrong regarding James’s signatures in the scenario in Question 4. 5marks

Following the Power matter, Lulu asks you about the replaceable rules in the Corporations Act 2001 (Cth)
Question 6: Explain to Lulu what the replaceable rules are, why they are written in the Corporations Act and what statutory effect they have? 20marks



Question 1 (20marks)
1. Explain what is incorporation
Extract from my textbook p.52 as follow:
Incorporation:
[3.50]Incorporation(that is, the process of becoming a body corporate) occurs upon registration by ASIC. The company is a separate legal entity from that date until its name is removed from ASIC’s(Australian Securities and Investments Commission) register
Shelf companies (briefly mention this)
[3.60]When a person wants to incorporate a company or transfer their existing business to a company, they may buy a “shelf company” from an accountant or solicitor. A shelf company is a company that is already in existence ( that is, registered by ASIC under the Corporation Act) but has not traded-it is sitting “on the shelf”. All that happens is that the name is changed and the shares are transferred to the new owner. If necessary, the internal rules can be altered.

2. Explain the procedure (the main procedure is registration)
Extract from my textbook p. 53 as follow:
Registration
[3.70]Part 2A.2 sets out the requirements and procedure for registration. See Figure 3.1 at [3.90].
The contents of the application are listed in s 117(2) and there is a standard form (Form 201) prescribed by Sch 2 to the Corporations Regulations 2001 (Cth) (Corporations Regulations).
Prior to lodging the completed application form, decisions will need to be made about the following:

l   What type of company is to be registered;
l   What form the internal rules are to take-constitution or replaceable rules or a combination of both;
l   Who is to be the first member or members;
l   Who is to be the first director or directors, and who is to be the company secretary (s 204A, optional for a proprietary company);
l   What (if any ) share capital there is to be;
l   Where the registered office of the company will be; and
l   What is to be the company’s name (if a name other than the company’s Australian Company Number (ACN) is to be used).
Certain names cannot be used. Note s 119:
SECTION 119
Company comes into existence on registration
A company comes into existence as a body corporate at the beginning of the day on which it is registered. The company’s name is the name specified in the certificate of registration
Note: the company remains in existence until it is deregistered.

Certificate of registration
[3.80] Once the application has been processed, ASIC gives the company its ACN and issues a certificate of registration: s 118(1).
The certificate of registration contains the following information:
l   The company’s name;
l   The company’s ACN;
l   The company’s type;
l   That the company is registered as a company under the Corporations Act;
and
l   The State or Territory in which it is registered; and
l   The date of registration.
Section 1274(7A) provides that the certificate of registration is conclusive evidence:
l   That all requirements regarding registration under the Corporations Act have been complied with;
l   That the company is registered; and
l   Of the date of registration.

Extract from my textbook p. 56 as follow:
Registered office
[3.100] The application for registration must include the address of the company’s registered office in Australia. It is not sufficient to specify a post office box, but the registered office can be premises occupied by someone else (for example, the company’s accountant): s 100. A proprietary company is not required to open its registered office to the public but this does not affect its obligation to make certain documents available for inspection: ss 173, 1300.
Australian Company Numbers (ACNs) and Australian Business Numbers (ABNs)
[3.110] As previously mentioned, ASIC allots every company an ACN upon registration. Registrable Australian bodies are also given a number known as an “Australia Registered Body Number” (ARBN): s 601CB.
(Briefly mention it, just tell what is ABN) Abbreviation
Since the introduction of the Australian Business Number (ABN) as part of the tax reform package that came into force on 1 July 2000, all companies have now been allocated an ABN (defined in Corporations Act, s 9) that will progressively replace the CAN and ARBN as the single business identifier for Commonwealth purposes.
This identifying number must be:
l   shown on the company’s common seal (if any) (s 123(1));
l   shown on its public documents (as defined in s 88A) and on its cheques (ss 153 – 155, see ASIC Regulatory Guide 13 and National Education Advancement Programs Pty Ltd v Ashton (1996) 14 ACLC 30);
l   displayed prominently at every place at which the company carries on business and that is open to the public (s 144); and
l   shown on all documents lodged with ASIC: s 88A(1)(a).
the above not so important just for your reference if you need it
Extract from my textbook p. 57 as follow:
Company names
[3.120] Provisions relating to the use of company names are contained in Pt 2B.6 and those dealing with foreign companies and registrable Australian bodies are contained in Pt 5B.3.
The company’s name is chosen by the promoters and application can be made to “reserve” the name prior to lodgement of the application for registration of the company: s 152. Alternatively, the name may simply be the company’s ACN.

SECTION 147(1) (Briefly mention this section)
When a name is available
Name is available unless identical or unacceptable
(1) A name is available to a company unless the name is:
(a) identical ( under rules set out in the regulations) to a name that is reserved or registered under this Act for another body; or
(b) identical (under rules set out in the regulations) to a name that is included on the national business names register in respect of another individual or body who is not the person applying to have the name; or
(c) unacceptable for registration under the regulations.
Add the following sentence to the essay is enough
Section 142-152 concern about the register office of a company.

3. Why it will be a ‘proprietary’ and ‘limited’ company? ***** Why do they choose this form and not choose public company? For example, if James and Lulu want to operate on a small scale. The two young businessmen want to start their business and will not have more than 50 non-employee shareholders. And besides a proprietary company must not engage in any activity that would require disclosure to investors, because the business is small therefore they do not have to comply on more ongoing reporting obligations  and if you set up a public company you need 3 and they only have two people. That’s why they choose proprietary and limited company. Furthermore you can explain more details on small proprietary and large proprietary company (just briefly explain it is ok)

Extract from my textbook p. 40 as follow:
Companies classified by public status
[2.250] As well as being classified according to the liability of the members, all companies under the Corporations Act are also classified as either public or proprietary. Proprietary companies are divided into a further subclassification of “small” or “large”.

SECTION 113(1),(3)
Proprietary companies
(1) A company must have no more than 50 non-employee shareholders if it is to:
(a) be registered as a proprietary company; or
(b) change to a proprietary company; or
(c) remain registered as a proprietary company.
Note: Proprietary companies have different financial reporting obligations depending on whether they are small proprietary companies or large proprieta” as part of its name;

Explain to James and Lulu the procedure by which Wonder Taste Pty Ltd can be ‘formed’ or set up and why it will be a ‘proprietary’ and ‘limited’ company

Assignment problem
James and Lulu, two young businessmen, plan to form a proprietary limited company to operate a restaurant. The company is to be called ‘Wonder Taste Pty Ltd’ (‘Wonder Taste’).
Question 1: Explain to James and Lulu the procedure by which Wonder Taste Pty Ltd can be ‘formed’ or set up and why it will be a ‘proprietary’ and ‘limited’ company? 20marks
On 22 February 2013, James entered into a contract with Good Beans Pty Ltd to purchase 10 kilos of coffee beans. He executed the contract in the name of ‘Wonder Taste Pty Ltd’. On 24 February, the proposed company was registered. The company did not adopt a constitution and had a common seal. James and Lulu each took 50% of the issued capital, and both were appointed as directors. Because of a dispute between James and Lulu regarding the contract with Good Beans Pty Ltd, this contract was not ratified by Wonder Taste until 30 March..
Question 2: By 30 April, the coffee beans supplied by Good Beans Pty Ltd had been delivered to Wonder Taste but not paid for. Explain who may be liable to pay for them and why. 25marks
On 2 May, James ordered a coffee machine from Power Pty Ltd (‘Power’). James affixed the company seal and signed the contract twice in his own name as a director.
Question 3: Explain what assumptions Power are entitled to make and why? 15marks
Question 4: Explain whether (and if so, how) the assumptions Power are entitled to make in the scenario in Question 3 would be different if Wonder Taste did not have a company seal and James had signed the contract twice, once in his own name and once in Lulu’s name? 15 marks
Question 5: Explain whether (and if so, how) your advice would have been different if Power had suspected something was wrong regarding James’s signatures in the scenario in Question 4. 5marks
Following the Power matter, Lulu asks you about the replaceable rules in the Corporations Act 2001 (Cth)
Question 6: Explain to Lulu what the replaceable rules are, why they are written in the Corporations Act and what statutory effect they have? 20marks
Question 1 (20marks)
1. Explain what is incorporation
Extract from my textbook p.52 as follow:
Incorporation:
[3.50]Incorporation(that is, the process of becoming a body corporate) occurs upon registration by ASIC. The company is a separate legal entity from that date until its name is removed from ASIC’s(Australian Securities and Investments Commission) register
Shelf companies (briefly mention this)
[3.60]When a person wants to incorporate a company or transfer their existing business to a company, they may buy a “shelf company” from an accountant or solicitor. A shelf company is a company that is already in existence ( that is, registered by ASIC under the Corporation Act) but has not traded-it is sitting “on the shelf”. All that happens is that the name is changed and the shares are transferred to the new owner. If necessary, the internal rules can be altered.
2. Explain the procedure (the main procedure is registration)
Extract from my textbook p. 53 as follow:
Registration
[3.70]Part 2A.2 sets out the requirements and procedure for registration. See Figure 3.1 at [3.90].
The contents of the application are listed in s 117(2) and there is a standard form (Form 201) prescribed by Sch 2 to the Corporations Regulations 2001 (Cth) (Corporations Regulations).
Prior to lodging the completed application form, decisions will need to be made about the following:
l   What type of company is to be registered;
l   What form the internal rules are to take-constitution or replaceable rules or a combination of both;
l   Who is to be the first member or members;
l   Who is to be the first director or directors, and who is to be the company secretary (s 204A, optional for a proprietary company);
l   What (if any ) share capital there is to be;
l   Where the registered office of the company will be; and
l   What is to be the company’s name (if a name other than the company’s Australian Company Number (ACN) is to be used).
Certain names cannot be used. Note s 119:
SECTION 119
Company comes into existence on registration
A company comes into existence as a body corporate at the beginning of the day on which it is registered. The company’s name is the name specified in the certificate of registration
Note: the company remains in existence until it is deregistered.
Certificate of registration
[3.80] Once the application has been processed, ASIC gives the company its ACN and issues a certificate of registration: s 118(1).
The certificate of registration contains the following information:
l   The company’s name;
l   The company’s ACN;
l   The company’s type;
l   That the company is registered as a company under the Corporations Act;
and
l   The State or Territory in which it is registered; and
l   The date of registration.
Section 1274(7A) provides that the certificate of registration is conclusive evidence:
l   That all requirements regarding registration under the Corporations Act have been complied with;
l   That the company is registered; and
l   Of the date of registration.
Extract from my textbook p. 56 as follow:
Registered office
[3.100] The application for registration must include the address of the company’s registered office in Australia. It is not sufficient to specify a post office box, but the registered office can be premises occupied by someone else (for example, the company’s accountant): s 100. A proprietary company is not required to open its registered office to the public but this does not affect its obligation to make certain documents available for inspection: ss 173, 1300.
Australian Company Numbers (ACNs) and Australian Business Numbers (ABNs)
[3.110] As previously mentioned, ASIC allots every company an ACN upon registration. Registrable Australian bodies are also given a number known as an “Australia Registered Body Number” (ARBN): s 601CB.
(Briefly mention it, just tell what is ABN) Abbreviation
Since the introduction of the Australian Business Number (ABN) as part of the tax reform package that came into force on 1 July 2000, all companies have now been allocated an ABN (defined in Corporations Act, s 9) that will progressively replace the CAN and ARBN as the single business identifier for Commonwealth purposes.
This identifying number must be:
l   shown on the company’s common seal (if any) (s 123(1));
l   shown on its public documents (as defined in s 88A) and on its cheques (ss 153 – 155, see ASIC Regulatory Guide 13 and National Education Advancement Programs Pty Ltd v Ashton (1996) 14 ACLC 30);
l   displayed prominently at every place at which the company carries on business and that is open to the public (s 144); and
l   shown on all documents lodged with ASIC: s 88A(1)(a).
the above not so important just for your reference if you need it
Extract from my textbook p. 57 as follow:
Company names
[3.120] Provisions relating to the use of company names are contained in Pt 2B.6 and those dealing with foreign companies and registrable Australian bodies are contained in Pt 5B.3.
The company’s name is chosen by the promoters and application can be made to “reserve” the name prior to lodgement of the application for registration of the company: s 152. Alternatively, the name may simply be the company’s ACN.
SECTION 147(1) (Briefly mention this section)
When a name is available
Name is available unless identical or unacceptable
(1) A name is available to a company unless the name is:
(a) identical ( under rules set out in the regulations) to a name that is reserved or registered under this Act for another body; or
(b) identical (under rules set out in the regulations) to a name that is included on the national business names register in respect of another individual or body who is not the person applying to have the name; or
(c) unacceptable for registration under the regulations.
Add the following sentence to the essay is enough
Section 142-152 concern about the register office of a company.
3. Why it will be a ‘proprietary’ and ‘limited’ company? ***** Why do they choose this form and not choose public company? For example, if James and Lulu want to operate on a small scale. The two young businessmen want to start their business and will not have more than 50 non-employee shareholders. And besides a proprietary company must not engage in any activity that would require disclosure to investors, because the business is small therefore they do not have to comply on more ongoing reporting obligations  and if you set up a public company you need 3 and they only have two people. That’s why they choose proprietary and limited company. Furthermore you can explain more details on small proprietary and large proprietary company (just briefly explain it is ok)
Extract from my textbook p. 40 as follow:
Companies classified by public status
[2.250] As well as being classified according to the liability of the members, all companies under the Corporations Act are also classified as either public or proprietary. Proprietary companies are divided into a further subclassification of “small” or “large”.
SECTION 113(1),(3)
Proprietary companies
(1) A company must have no more than 50 non-employee shareholders if it is to:
(a) be registered as a proprietary company; or
(b) change to a proprietary company; or
(c) remain registered as a proprietary company.
Note: Proprietary companies have different financial reporting obligations depending on whether they are small proprietary companies or large proprieta” as part of its name;
ry companies ( see section 45A and Part 2M.3).
(3) A proprietary company must not engage in any activity that would require disclosure to investors under Chapter 6D, except for an offer of its shares to:
            (a) existing shareholders of the company; or
            (b) employees of the company or of a subsidiary of the company.
Note: If a proprietary company contravnenes this subsection, ASIC may require it to change to a public company (see section 165).
The policy of the Corporations Act is to impose greater ongoing reporting obligations on public companies than on proprietary companies. Proprietary companies are, therefore, cheaper to maintain.
It is easy to distinguish whether a company is a proprietary or public company from its name (ss 148-149):
l   a proprietary company limited by shares will have “Pty Ltd” as part of its name;
l   a public company limited by shares will have “Ltd” as part of its name; and
l   a no liability company (which must be a public company) will have “NL” as part of its name.
There are other differences between a public company and a proprietary company, for example, the number of directors required and the internal rules that apply. The main difference is the ability of public companies to raise funds from the public by complying with the disclosure requirements in Ch 6D: s 113(3). If, at any time, the prohibition on fundraising becomes an onerous restriction for a proprietary company, it is possible for the company to convert to a public company.
Small Business Guide
[2.260] Part 1.5 of the Corporations Act is a plain English guide to the main rules in the Corporations Act that apply to proprietary companies limited by shares. Because a proprietary company limited by shares is the most common type of company used by small business, it is intended to help those involved in such businesses understand their basic legal obligations. It refers the reader to the relevant sections of the legislation and is a useful summary of the registration and ongoing requirements of a proprietary company.
Why is it a limited company?
Limited by shares: as they are running business on profits purpose so they have to choose limited by shares because they don’t have sufficient assets to meet all its debts, explain the definitions in your own words. The following extract from the text book for your references: pls also explain it with example apply in their situation why they chose limited company?
Limited by shares
[2.210] A company limited by shares (whether public or proprietary) is by far the most common form of company. In the event that a company does not have sufficient assets to meet all its debts, each member (called a “shareholder”) is only liable for the amount, if any, that remains unpaid on their shares: s 9 (definition of “company  limited by shares”) and s 516.
The name of a company limited by shares must end in either “Limited” or “Ltd” to indicate that the liability of the members is limited in this way. The shares are usually paid for in full at the time of issue. Alternatively, “partly paid” shares may be issued where some of the issue price will be paid on allotment with the balance paid in instalments when requested or “called up” by the company as it needs further capital: s: 254A(1)(c).
The limitation of personal liability in this way is the main incentive for use of this type of company.
P.52 Briefly explain about registration
No need to mention “for alternative purpose”
Only ABN S142 – 152
Why it will be a “proprietary’ and limited company not a public company? Besides, why is it limited company?
(1) Pty P.40
(i) 50 member
(ii) small scale
→ less reporting burden
(ongoing reporting obligation)
(iii) Public
→ 3 directors
(iv) Classification (Briefly)
(2) Ltd P.37
(i) For profit (Trading purpose)
(ii) by shares (limited to their each share capital) P.36 paid the balance if they don’t choose limited company
Question 2 (25marks)
Point to argue: the last sentence “ this contract was not ratified by Wonder Taste until 30 March.” We can argue is that reasonable to ratify within a month? Make assumption, I am not sure if it is better to argue this point, my lecture only said you can argue that is we want.
(1)  what is a active promoter? As James is a promoter (Active) in this scenarioP.178
Promoters and their duties
[8.20] In general terms, promoters are the people who establish the company. The Corporations Act 2001 (Cth) ( Corporations Act) does not define “ promoter” so it is necessary to rely on the principles established by case law: see, eg, Tracy v Mandalay Pty Ltd (1953) 88 CLR 215
The principles established in the cases above provide for the following points:
  •  both the people who actively participate in starting the company, and those who actively participate in raising equity for the company after it has been registered but before an independent board has been appointed, will be promoters (Aequitas Ltd v AEFC Leasing Pty Ltd (2001) 19 ACLC 1,006);
  •  people who take only a passive role in forming the company may still be promoters if they know of the plans and have agreed to share in the profits (Tracy v Mandalay Pty Ltd (1953) 88 CLR 215; Aequitas Ld v AEFC Leasing Pty Ltd (2001) 19 ACLC 1, 006);
  •  Those acting merely in a professional capacity to register the company on behalf of a promoter are not themselves promoters-for example, solicitors and accountants who do the “paper work” but take no further part in the business plans; and
  •  Companies may be promoters: Parra Wirra Gold & Bismuth Mining Syndicate No Liability v Mather (1934) 51 CLR 582.
(2) what kind of contract is that ? Mention the date; p.183  Within reasonable time (ratification valid) s131(1)(4) P.183
Answer: it is a Pre – registration contract (by 24 Feb) – Definition P.182
Quote Section 131(1) Use your own words to explain the section 131(1)
The following extract from text book Section 131(1) for your reference:
SECTION 131(1) Contracts before registration
(1)  if a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract:
     (a) within the time agree to by the parties to the contract; or
     (b) if there is no agreed time-within a reasonable time after the contract is entered into.
The amount that the person is liable to pay to a party is the amount the company would be liable to pay to the party if the company had ratified the contract and then did not perform it at all.
Effect of ratification
[8.130] if the company ratifies the contract within the requisite period, each party has the normal rights under contract law to sue for breach-the company “becomes bound by the contract and entitled to its benefit”: s 131(1).
No ratification p.184 textbook
[8.140] what happens if the company is not registered or if the company fails to ratify the contract within the relevant period
Under s 131(2), the other party has a right of recovery against any person who purported to enter into the contract on the company’s behalf. The amount recoverable is the same as that which would have been awarded as damages if the contract had been ratified, but had then been breached by the company: s 131(2).
If the company has been registered it may have to repay some or all of this amount to the person who entered into the contract on its behalf. See s 131(3)©, but note that the person has no right of indemnity against the company: s 132(2). This is the reverse situation of x 131(4)-that is, the court may take into account the possibility that the company has insufficient assets and may order the person who purported to act on its behalf to pay. With regard to the amount of damages awarded and their apportionment, the court has a broad discretion under s 131(3) to “do anything that it considers appropriate in the circumstances”.
Ability to avoid liability
[8.150] Under s 132, people who have purported to enter into contracts on behalf of companies prior to registration can exclude themselves from liability if they obtain a signed release from the other party. By virtue of contract law principles, another way personal liability can be avoided is where the company and the other party enter into a new contract in place of the pre-registration contract. The new contract is called a novation.
Tips given by Lecturer:
  •  We can argue whether it is within a reasonable time (up to you, as long as it is logic)
  •  What is James’ position if the company does not pay? James is liable
  •  If Good Beans takes to the court…..explain this scenario
  •  James can find the third party then he can totally release from personal liability or novation (refer to ability to avoid liability)
  •  Make some argument e.g. ratify the contract after one month is unreasonable (make assumption), whether they are agents, enter a new contract with a third party better than ratification……how to argue is up to you as long as it is logical
Conclusion: The company and or James may be liable to pay for them; explain for each party
(4) Find third party to take up the contract (novation)
(5) Company and/or James
Question 3 (15marks)
If you use a company seal, apply SECTION 127.
James signed the contract twice in his own name as a director. This section talks about witnessing. I don’t know whether the signatures are witnessed. You can quote SECTION 128 first.
SECTION 129:
If the document shows that James has signed the contract and the contract was witnessed, then the document is properly executed. The question didn’t say the sign of James is witnessed.
Although power is entitled to make an assumption under SECTION 128 and 129 (6), unless there is evidence that the signatures are witnessed, otherwise power will not entitle to make this assumption.                                                                                                                                                                                                                 
Extract from my textbook p. 147 as follow:
SECTION 127
Execution of documents (including deeds) by the company itself
(2) A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:
   (a) 2 directors of the company; or
   (b) a director and a company secretary of the company; or
   (c) for a proprietary company that has a sole director who is also the sole company secretary – that director.
Extract from my textbook p. 150 as follow:
[7.90] Section 128 provides that a person may rely on the assumptions in relation to “dealings” with a company.
SECTION 128 (1) – (2)
Entitlement to make assumptions
(1) A person is entitled to make the assumptions in section 129 in relation to dealing
with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.
(2) A person is entitled to make the assumptions in section 129 in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company. The company and the other person are not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.
Extract from my textbook p. 151 as follow:
SECTION 129
Assumptions that can be made under section 128
(6) A person may assume that a document has been duly executed by the company if:
(a) the company’s common seal appears to have been fixed to the document in accordance with subsection 127(2); and
(b) the fixing of the common seal appears to have been witnessed in accordance with that subsection.
Officer or agent with authority to warrant that document is genuine or true copy.
Question 4 (15marks)
If the company does not use company seal, use SECTION 127 (1).
SECTION 129(5) has been complied with.
It must be either signed by two directors or a director and a company secretary.
How does the third party know that he has signed instead of Lulu? Unless the third party has good reason to suspect that the signature in Lulu’s name was watched.
In good faith, I am entitled to make an assumption in SECTION 129(5).
Extract from my textbook p. 147 as follow: SECTION 127
Execution of documents (including deeds) by the company itself
(1) A company may execute a document without using a common seal if the document is signed by:
   (a) 2 directors of the company; or
   (b) a director and a company secretary of the company; or
   (c) for a proprietary company that has a sole director who is also the sole company secretary – that director.
Extract from my textbook p. 151 as follow:
SECTION 129
Assumptions that can be made under section 128
(5) A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1). For the purposes of making the assumption, a person may also assume that anyone who signs the document and states next to their signature that they are the sole director and sole company secretary of the company occupies both offices.
      Document duly executed with seal
Question 5 (5 marks)
Extract from my textbook p. 153 as follow:
Exceptions
[7.120] People having dealings with companies can rely on these assumptions, whether or not they actually made them, and even if an officer of the company is acting fraudulently, unless “they knew and suspected that the assumption was incorrect”: s 128(3) and (4).
SECTION 128(3) – (4)
(3) The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings.
(4) A person is not entitled to make an assumption in sections 129 if at the time of the dealings they knew or suspected that the assumption was incorrect
Question 6 (20marks)
(1) Replaceable rule is one source of internal rules P.86 s134-136 + definition
Extract from textbook p.86 as follow:
Principles
[5.10] the internal rules of a company govern its various “ internal” relationships between the company (as a separate legal entity)and its two main constituents-its members and officers.
Sources of internal rules
[5.20] the internal rules of a company can be comprised of:
l   a consititution that the company has adopted (if one has been adopted on or after registration);
l   the replaceable rules in the Corporations Act;or
l   a combination of both: s 134.
If a company adopts a constitution, it can be modified from time to time by special resolutions approved by the members of the company. A special resolution must be passed by at least 75% of the votes cast by members entitled to vote on the resolution: s 9. Any such special resolutions also form part of the internal rules of the company.
The source of the rules applying to a particular company will depend on two factors:
l   the type of company; and
l   whether the company was registered before or after 1 July 1998.
The latter distinction is a consequence of substantive reforms introduced by the Company Law Review Act 1998 (Cth) which came into effect on 1 July 1998. Because companies registered prior to 1 July 1998 can continue with their existing internal rules,it is important to have at least a basic understanding of the sources of internal rules (and the related terminology under the pre-1 July 1998 regime: see [5.110]-[5.140]. however, our major emphasis is on the current regime.
(2) Can be combined with clause drafted by the company (constitution) s134-136
Statutory Provisions
SECTIONS 134-136
134 Internal management of companies
A company’s internal management may be governed by provisions of this Act that apply to the company as replaceable rules, by a constitution or by a combination of both.
Note: there are additional rules about internal management in ordinary provisions of this Act and also in the common law.
135 Replaceable rules
Companies to which replaceable rules apply
(1) A section or subsection (except subsection 129(1), this section and sections 140 and 141) whose heading contains the words:
   (a)   replaceable rule-applies as a replaceable rule to:
        (i)  each company that is or was registered after 1 July 1998; and
        (ii)  any company registered bfore 1 July 1998 that repeals or repealed its constitution after that day; and
   (b)   replaceable rule for proprietary companies and mandatory rule for public companies-applies:
        (i)  as a replaceable rule to any proprietary company that is or was registered after 1 July 1998: and
        (ii)  as a replaceable rule to any company that is or [was]registered after 1 July 1998 and that changes or chaged to a proprietary company (but only while it is a proprietary company); and
        (iii)  as a replaceable rule to any proprietary company that is or was registered before 1 July 1998 that repeals or repealed its constitution after that day; and
        (iv)  as an ordinary provision of this Act to any public company whenever registered.
The section or subsection does not apply to a proprietary company while the same person is both its sole director and sole shareholder.
Note 1: see sections 198E, 201F and 202C for the special provisions that apply to a proprietary company while the same person is both its sole director and sole shareholder.
Note 2: a company may include in its constitution(by reference or otherwise) a replaceable rule that does not otherwise apply to it.
[Editor’s Note; there is a  typographical drafting error in s 135(1)(b)(ii). Currently, the text reads ‘is or eas registered”.]
Company’s constitution can displace or modify replaceable rules
(2) A provision of a section or subsection that applies to a company as a replaceable rule can be displaced or modified by the company’s constitution.
Failure to comply with replaceable rules
(3) A failure to comply with the replaceable rules as they apply to a company is not of itself a contravention of this Act (so the provisions about criminal liability, civil liability and injunctions do not apply).
Note: Replaceable rules that apply to a company have effect as a contract (see section 140).
136 Constitution of a company
(1)  A company adopts a constitution:
    (a)            on registration – if each person specified in the application for the company’s registration as a person who consents to become a member agrees in writing to the terms of a constitution before the application is lodged; or
    (b)            after registration – if the company passes a special resolution adopting a constitution or a court order is made under section 233 that requires the company to adopt the constitution.
    [Note to this subsection not extracted.]
(2)  The company may modify or repeal its constitution, or a provision of its constitution, by special resolution.
    Note: The company may need leave of the Court to modify or repeal its
constitution if it was adopted as the result of a Court order (see subsection 233(3)).
(3)  The company’s constitution may provide that the special resolution does not
have any effect unless a further requirement specified in the constitution relating
to that modification or repeal has been complied with.
(4)  Unless the constitution provides otherwise, the company may modify or repeal a
further requirement described in subsection (3) only if the further requirement is
itself complied with.
   [subsections (5) and (6) not extracted.]
Replaceable rules
[5.40] The relevant sections of the Corporations Act are described generally as the “ replaceable rules”. These sections deal with internal matters such as the appointment and removal of directors, convening and conduct of meetings and share transfers. These replaceable rules operate as a series of “default provisions” – that is, the replaceable rule applies “ in default” of the members adopting a constitution that provides for a different rule. It is intended that the replaceable rules will be updated from time to time by amending these sections of the Corporations Act to reflect current “ best practice”.
(3) Effect of replaceable rule P93
Effect of the constitution and replaceable rules
[5.150] Under s 140(1) the constitution (if any) and any replaceable rules that apply to the company are to “ have effect as a contract”. This contract is between:
  •  each member and the company;
  •  the company and each director and company secretary; and
  •  the members themselves.
The statutory contract created by this section is different from other contract in that:
  •  the remedies available for breach are generally limited to a declaration or an injunction, not damages;
  •  the parties (members, directors and company secretary) are bound whether or not they agreed to the terms of the contract (for example, a person who was not a member when the company was formed or the constitution was adopted will still be bound by its terms);
  •  it can be modified without the consent of every party to it (see [5.160]-[5.190] and NRMA Ltd v Snodgrass (2001) 37 ACSR 382);
  •  it is a written contract notwithstanding that each party does not sign a copy of it; and
  •  no consideration has been given.
Alteration of the constitution and replaceable rules
[5.160] A company has power under s136(2) to alter its constitution: see [5.30]. Alteration includes insertion and deletion of provisions as well as amendments. Any alteration has to be by special resolution (that is, approved by a 75% majority of members who are entitled to and cast a vote on the resolution: s9 and see [10.270].
Effective date of alteration
[5.170] Section 137 provides that a special resolution making any alteration to a constitution comes into effect on the date the resolution is passed or any later date specified in, or determined according to, the resolution.
Lecturer’s tips for question 6:
1. replaceable rule is one source of internal rules; you have to quote the section that how can you use the replaceable rule but use your own words? (Why are they written in the Corporations Act? Section 134-136) , for what purpose? What are internal rules?
2. govern: can be use it as a combination of both;
  It can be used together with some clauses (combination rules) in your constitution or if they don’t want to draft their own constitutions they can simply use replaceable rules; for example depends on what they want to adopt, our role is advice LuLu and James may want to use some of the clauses
Use to run the company as their needs, depending on whether Lu Lu and James adopt the XX rules. For example: James & Lu Lu may want to use……..
We design the answer
Point have to mention in the question:
·         What is a contract between company and director? What is the different between company and director and a normal contract?
·         If one party of the contract breach the XX rules the innocent party can sue the party, that is what is mean by the contract between company and director
·          A company is ruled by majority
·         Special resolution (if you want to change the replaceable rules or constitutions)
·         Use example: the parties must comply the rule whether or not they agree to the terms of the contract.