Business 4000

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Business 4000

• The Corporation - External Affairs

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Fundamentals

• Corporations used to operate freely, concerned
  only with making profit
• Because of changes in society, legislation and
  standards, modern corporations are subject to a
  variety of significant pressures
• Regulatory controls
• Contractual obligations
• Duties of Care
• All mainly designed to protect people dealing
  with a corporation

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Protecting Third Parties in Contract

• Corporations contract through agency law
• All the rules of agency apply, with the agency
  agreement being the powers and authorities
  delegated to the agent by the corporation
• Indoor Management Rule
• Third parties are entitled to rely upon apparent
  authority of corporate representative, if
  reasonable to do so
• Really a variation on apparent authority
• Do not have to inquire or investigate corporate
  authorization of the agents act

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• Pre-incorporation Contracts
• Frequently parties may make contracts in the name
  of a corporation, before it even exists
• Corporation can adopt these contracts by
  ratification once it is created
• If corporation does not ratify, the person who
  signed for corporation is bound
• Protects third parties who may not be aware of
  status of the corporation, or take the time to
  inquire the contract is always enforceable
  against somebody

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Protection of Creditors

• Limited liability requires protections that
  assets cannot be wasted or subverted from
  corporation
• Corporations Act contains a number of solvency
  tests, which apply when corporation
• pays shareholders dividends
• transfers property or capital to shareholders
• makes loans to shareholders
• purchases its own shares
• Separate legislation, the Bulk Sales Act,
  requires consent of a majority of shareholders
  before all or substantially all of the assets of
  a company can be sold

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Protection of Investors

• Securities legislation governs publicly-traded
  companies, with onerous reporting and disclosure
  requirements
• Insider trading legislation is one example
• Requirements for prospectus, regular public
  reporting, continuous disclosure
• Securities commissions regulate the activities of
  publicly-traded companies under these regulations

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Civil Liability

• Corporations are liable for breach of contract as
  a natural person
• Corporations are liable for tortious actions as a
  natural person
• Usually through vicarious liability for the
  actions of its employees or agents
• Directors can be liable for breach of contract,
  in tort or breach of fiduciary duty to the
  corporation

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Criminal Liability

• Criminal meaning violation of statutory or
  regulatory requirement, usually resulting in
  fines or imprisonment
• Criminal offences come in a variety of forms
• Mens Rea offences require proving guilty actions
  and a guilty mind
• Strict Liability only the action has to be
  proven however the accused can defend by showing
  all reasonable care taken
• Absolute Liability Offences only the action has
  to be proven - there is no defence

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• Problems
• The vast majority of offences are mens rea
  offences - our system always looks for both the
  act and the intent
• We incarcerate for serious offences
• How do you
• Find intent is a corporation?
• Imprison a corporation?
• Directing mind principle
• Show the leaders of the corporation had the
  mens rea to commit the offence
• Their mens rea becomes the corporations mens rea

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Director and Senior Officer Liability

• Increasingly, violation by corporation results in
  personal liability of the directors and / or
  officers
• Very effective deterrent - prevents people acting
  through or hiding behind corporations
• Examples
• Environmental liability
• Taxes
• Wages
• Cause a large number of complex problems, in
  sorting out the standards to apply, who to
  pursue, and the nature of the punishment