Exam Revision – Corporation Law
[4.01] Through section 124(1) of the Corporations Act 2001, upon the date of registration, a company has the full legal capacity of a natural person where the identity of the company is separate to its shareholders, directors and agents. Thus, a company can sue and be sued. Furthermore, as a company has a separate legal entity, the liability of the shareholders, directors and agents of the company is limited. The principle that a company is a separate legal person is a cornerstone of company law. This was firmly established in the landmark case of Salomon v Salomon (1897) where the House of Lords held that a company is considered to be a new legal entity.
[4.02] Although a company has a separate entity, a company is an artificial body, thus the acts of a company must be conducted through its directors, officers and other agents. The concept of a company acting through its directors, officers and other agents raises the question of to what extent is a company bounded by the acts of these significant individuals.
[4.03] Under section 128, a third party dealing with a company are entitled to make the assumption outlined in section 129. The assumptions in section 129 provides that a third part who is acting in good faith, can make the assumption that the person with whom they are dealing with has the authority to bind the company and all procedures and documents are in order. An exception to this is if the third party has the knowledge that the person of the company that they are dealing with has no authority.
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[4.04] Under the definition in the Corporations Act 2001, a director is not only a person who has been appoint to that role but also includes individuals who are regarded as a director if they act in the position of the director.
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[4.05] A director of a company has specific duties that they must meet where directors must act with care and diligence, good faith and without proper use of position or information.
[4.06] Under section 180 of the Corporation Act 2001, a director has the duty pf care and diligence, thus directors must exercise their powers and duties with care and diligence that a reasonable person would do if they were in the position of the director.
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Defence
[4.07] In the circumstance where a director or other officer of a corporation has made a business judgement which has resulted in detrimental outcomes for the company, the director is entitled to a defence and is subjected to the business judgment rule under section 180(2) of the Corporation Act 2001. The business judgment rule provides a safety net for directors who act with care and diligence in making a business judgment. The threshold for the business judgment rule is, a director must act in good faith and for a proper purpose, does not possess perso...
