Australian Company Laws Essay

Length: 4 pages Sources: 8 Subject: Business Type: Essay Paper: #39321833 Related Topics: Law School, Common Law, Companies, Board Of Directors
Excerpt from Essay :

Company Law in Australia

Corporate governance related regulations in Australia are relatively similar to those in the United Kingdom. This is primarily because Australia's Corporations Act of 2001, which is the major corporate governance related regulations, has traditionally borrowed greatly from the United Kingdom company law, especially the Companies Act of 2006. Australia has relatively borrowed heavily from the United Kingdom company law as part of progress towards modernizing the country's statutes on corporate governance. Moreover, these attempts towards modernizing corporation statutes in Australia contributed to the development of a legal structure that currently comprises one national law, which is known as the 2001 Corporations Act. Similar to other Australian corporations laws, the Corporations Act 2001 is administered by the Australian Securities and Investments Commission, which is the national regulatory authority. There are several differences between corporations laws in Australia and those in the United Kingdom despite the heavy borrowing by Australia.

Corporate Governance

Similar to common law, Australian corporation law defines a corporation as a distinct legal entity that is created legislation, charter or prescription. The country's law also permits the formation of a proprietary company with various characteristics including full foreign ownership, repatriation of profits, at least one director and a shareholder, and the requirement that one director to be an Australian resident. While a private company can have a minimum of one director and one shareholder and does not need a secretary, a public company must have at least three directors with two them ordinarily residing in Australia (Redchip Lawyers, n.d.). Section 201H of the Corporations Act 2001 states that the directors of a company can appoint other directors. Together with the company's shareholders, the director forms the company's board of directors through appointments, which must be confirmed at the next general meeting (Commonwealth Consolidated Acts, n.d.). This is relatively different from the UK since the rule can be substituted to an extent that shareholders make all appointments to the board.

The determination of the scope of directors' duties in Australia involves compliance with corporate governance standards and consideration of rulings by Australian courts on corporate governance issues. The board has various responsibilities and duties including having operating financial and audit committees with self-regulating directors in addition to accounting standards and internal review. This responsibility or duty was determined in Australian Securities and Investments Commission v. Rich where the court stated that boards has such responsibilities. The decision in this case reflected the business judgment rule that exists in the country's corporate law (Legg & Jordan, n.d.). The UK differs from Australia since company constitutions are at liberty to distribute rights and duties to various groups however desired whereas corporate governance standards focus on safeguarding shareholders and investors. While directors in Australia are regarded as guardians of shareholder money, they must make decisions and carry out actions in the best interest of the firm (Dermansky, n.d.).

Ownership Structure and Decision Making

Similar to common law, UK and Australian corporations laws vest the general management power in the board of directors. These directors are given full powers to directors to assign various tasks to other workers and handling the day-to-day operations of the company. Both the UK and Australian corporations laws provide exclusive voting rights to shareholders including the removal of directors through a simple majority. Section 136 (2) of Australia's Corporations Act 2001 gives shareholders the right to amend the company's vote or enact a special resolution through a two-thirds vote in a general meeting. In essence, the division of power between the board of directors and shareholders is that the former deals with management of the company while the latter focuses on providing leadership to the company. Unlike in Australia, shareholders in the...


Moreover, Australian corporations laws are slightly different in protection of minority shareholders by giving them statutory rights like ability to bring legal proceedings, inspect the firm's books, seek court orders, approve certain transactions, and call shareholder meeting or propose resolutions (Gilbert Tobin, n.d.).

According to Australian corporations laws, even though directors have fiduciary and statutory duties, they must exercise their powers collectively as a board and not individually (FTC Corporate & Tax Advisory, 2002). The decision in Brunninghausen v. Glavanics reinforced this regulation by stating that if every shareholder had an individual right, company directors would be exposed to a huge amount of actions. This means that directors can make decisions in the best interest of the company but not the interests of some of the shareholders. The same view was held in Glandon Pty Ltd. v. Strata Consolidated Pty Ltd. where the court ruled that directors' fiduciary duties are owed to the firm only. However, directors should consider existing shareholders when managing the company as held in Provident International Corporation v. International Leasing Corp Ltd. This ruling implies that directors have a responsibility of balancing short-term and long-term interests of shareholders. Similarly the United Kingdom corporations laws requires directors to act in the best interests of the company though they must consider the interests of other stakeholders including shareholders. The need for directors to balance these interests in the United Kingdom is evident in the decision in Hutton v. West Cork Railway Co in 1883.

Compliance Process

According to Australian corporations laws, the requirements for an individual to become a director including the fact that the individual must be between 18 and 72 years, should not have been declared bankrupt, must not have any pending cases related to formation and managing a company, and should not be prohibited from managing a company. Despite similarity of certain requirements, there are some differences in UK corporations laws. These differences include having attained the age of 16 years and likelihood of a person to be appointed before this age though the appointment takes effect when he/she turns 16 years (Open Government Licence, 2006). The other requirements for compliance in Australia include notifying the ASIC once a company raises capital, informing the ASIC if the company director and/or secretary is appointed or moved and notifying the ASIC if the company increases or decreases revenue, passes a special resolution, and changes its name or constitution. Similarly, in the United Kingdom, a public company needs to collaborate with the Financial Reporting Council with regards to compliance with the country's corporation laws.

Major Successes and Need for Improvement

Even though most of its corporate standards and laws are heavily borrowed from the United Kingdom and common law, Australia has effectively reformed common law procedure with regards to shareholder rights. Unlike the UK, Australia has achieved this through introducing a derivative claim in relation to shareholder litigation. The derivative claim is states in sections 236-242 of the Corporation Act 2001 and provides the basis for a stakeholder to sue the company for a breach of duty owed. Secondly, unlike the United Kingdom, Australia has also made considerable efforts towards ensuring corporations laws in the country are self-enforcing. However, Australia has made minimal gain with regards to enforcement or implementation of corporations laws. There is need to improve on implementation of these laws given that more agile enforcement strategies like effective criminal prosecutions have not only been problematic but also challenging (Tomasic, 2006). This need is attributed to the fact that implementing the provisions of these laws is yet to be addressed in an integrated and comprehensive manner.

In conclusion, Australian corporations laws heavily borrows from provisions in the UK corporations laws and common law. As a result, there are considerable similarities between Australian corporations laws and UK corporations laws. However, these regulations in both countries also differ with regards to corporate governance, ownership structure and decision making, and compliance process. Unlike the United Kingdom, Australia has made significant gains in ensuring corporations laws are self-enforcing and enhancing certain common law procedures. Nonetheless, the country needs to enhance the implementation of the provisions of these laws in an integrated and comprehensive manner.


Commonwealth Consolidated Acts n.d., Corporations Act 2001 -- Sect 201H, Australasian Legal

Information Institute, viewed 19 December 2014,

Dermansky, P n.d., Should Australia Replace Section 181 of the Corporations Act 2001 (Cth)

with Wording Similar to Section 172 of the Companies Act 2006 (UK)? Melbourne Law School, viewed 19 December 2014,

FTC Corporate & Tax Advisory Pte. Ltd. 2002, Directors' Statutory and Fiduciary Duties, FTC

Corporate & Tax Advisory Pte. Ltd. -- Corporate & Business Advisory, viewed 19 December 2014,

Gilbert Tobin n.d., Corporate Regulation, Gilbert Tobin, viewed 19 December 2014,

Legg, M. & Jordan, D. n.d., 'The Australian Business Judgment Rule After ASIC v. RICH:

Balancing Director Authority and Accountability,' Australasian Law Review, vol. 34, no. 2,

Open Government Licence 2006, Companies Act 2006, The National Archives, viewed 19

December 2014,

Sources Used in Documents:


Commonwealth Consolidated Acts n.d., Corporations Act 2001 -- Sect 201H, Australasian Legal

Information Institute, viewed 19 December 2014,

Dermansky, P n.d., Should Australia Replace Section 181 of the Corporations Act 2001 (Cth)

with Wording Similar to Section 172 of the Companies Act 2006 (UK)? Melbourne Law School, viewed 19 December 2014,
Corporate & Tax Advisory Pte. Ltd. -- Corporate & Business Advisory, viewed 19 December 2014, <>
Balancing Director Authority and Accountability,' Australasian Law Review, vol. 34, no. 2,
December 2014, <
Incorporation Services, viewed 19 December 2014, 1,

Cite this Document:

"Australian Company Laws" (2014, December 19) Retrieved January 20, 2022, from

"Australian Company Laws" 19 December 2014. Web.20 January. 2022. <>

"Australian Company Laws", 19 December 2014, Accessed.20 January. 2022,

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