Question 1

Promoters owe fiduciary duties to the company, including the duty to avoid conflicts of interest.

Accepted Answer

Promoters, who play a crucial role in the formation and setting up of a company, owe fiduciary duties to the company. This includes the duty to avoid conflicts of interest, ensuring that their decisions and actions are in the best interest of the company rather than personal gain.

Question 2

Mick decides to form a company called Big Wind Pty Ltd. Prior to registering the company, Mick enters into a contract purportedly on behalf of Big Wind Pty Ltd with Lotzarain Ltd. Mick subsequently registers Big Wind Pty Ltd. The contract is not binding unless Big Wind Pty Ltd ratifies the contract in accordance with section 131 of the Corporations Act 2001 (Cth).

Accepted Answer

Before registration, Big Wind Pty Ltd did not exist as a legal entity and could not enter into contracts. After incorporation, for the pre-incorporation contract to become binding, the company must ratify it as per section 131 of the Corporations Act 2001 (Cth).

Question 3

A person will ONLY be deemed to be a promoter if the person actively takes part in the formation of the company.

Accepted Answer

A person can be deemed a promoter if they undertake tasks related to the formation of the company, such as raising capital, without necessarily taking an active part in the day-to-day formation activities.

Question 4

Pre-registration contracts can never be binding because a company cannot enter into a binding contract until after it is registered.

Accepted Answer

Pre-registration contracts can be binding if certain conditions are met, such as ratification by the company after its formation or if there are provisions in the law allowing a promoter or person acting on behalf of the company to be personally liable until the company adopts the contract.

Question 5

Passive promoters owe fiduciary duties to the corporation including, but not limited to, the duty to act bona fide.

Accepted Answer

Passive promoters, like active promoters, owe fiduciary duties to the corporation, which include the duty to act in good faith (bona fide) for the benefit of the corporation. This encompasses duties of loyalty and care, ensuring that their actions do not harm the corporation and are in its best interest.

Question 6

Shelf companies can be used by promoters to prevent contracts being binding by and against the company.

Accepted Answer

Shelf companies are pre-registered companies with no activity, used for the convenience of having a ready-made legal entity; they do not inherently prevent contracts from being binding. Contracts are binding if entered into by authorized representatives of the company.

Question 7

Homer and Marge decide to form a company called Duff Enterprises Pty Ltd (Duff) to undertake a business selling beer. Before the company is registered, Homer enters into a contract on behalf of Duff with Otto Pty Ltd for the purchase of a bus. Which of the following is incorrect:

Accepted Answer

The Corporations Act s 131 (2) provides that if a company fails to ratify the contract the person who entered into the contract is liable.

Question 8

Which of the following persons may be classified as a promoter of NewCorp Ltd:

Accepted Answer

As a professional Matt would not be a promoter provided he acts on instructions only in his professional capacity.

Question 9

Mickey and Minnie decide to form a company called Mouse Enterprises Pty Ltd (Mouse) to undertake a business selling a newly designed mouse trap. Before the company is registered, Mickey enters into a contract on behalf of Mouse with Cat Pty Ltd for the purchase of office supplies. Which of the following is incorrect:

Accepted Answer

Corporations Act 131

Question 10

Isaac decided to form a company to run his business selling physics books. Isaac knows very little about corporate law matters. He went to ASIC to incorporate his company (which he wanted to call Gravity Books Pty Ltd) with him as the sole shareholder and the sole director. Unfortunately, the attendant at the ASIC office told him that the name Gravity Books Pty Ltd was already taken and he would have to come up with another name. He said he would need to think about a new name and left. For the next week Isaac thought long and hard about a new name but in the meantime entered into a number of contracts for the purchase and sale of books in the name Gravity Books Pty Ltd. While sitting under an apple tree, Isaac had an epiphany about the new name. He went back to the ASIC office and registered the company with the name Gravitation Books Pty Ltd. Which of the following is correct:

Accepted Answer

Corporations Act s 131

Question 11

Who is a 'promoter' of a company?

Accepted Answer

The answer of Who is a 'promoter' of a company?...

Question 12

Who will not be regarded as a 'promoter' of a company?

Accepted Answer

The answer of Who will not be regarded as a...

Question 13

What are a promoter's duties?

Accepted Answer

The answer of What are a promoter's duties?...

Question 14

How should promoters make disclosure?

Accepted Answer

The answer of How should promoters make disclosure?...

Question 15

What remedies are available against promoters who are in breach of their duties?

Accepted Answer

The answer of What remedies are available against promoters who...

Question 16

What is a pre-registration contract?

Accepted Answer

The answer of What is a pre-registration contract?...

Question 17

Why were the common law principles related to pre-registration contracts superseded by s 131 of the Corporations Act?

Accepted Answer

The answer of Why were the common law principles related...

Question 18

What does s 131(1) provide?

Accepted Answer

The answer of What does s 131(1) provide?...

Question 19

What do s 131(2) and (4) mean for a promoter's liability?

Accepted Answer

The answer of What do s 131(2) and (4) mean...

Question 20

Ronald registers a company called McDonald Pty Ltd. Ronald is the sole shareholder and sole director of McDonald Pty Ltd. McDonald Pty Ltd does not have a secretary or any other officers or employees and has no assets other than $500 in a bank account. It has no business operations. Which of the following is true?

Accepted Answer

(a) False as McDonald Pty Ltd may adopt the replaceable rules, but is not required to. [LO 3.1.2]
(b) False as a company need only have one director. [LO 2.2.5]
(d) False as McDonald Pty Ltd is a proprietary company. [LO 2.2.1]

Quiz 2: Company Constitution, Promoters and Pre-Registration Contracts