Answer to Question #308053 in Accounting for Faith

Question

Explain FIVE consequences of incorporation (10 Marks)

- State & Explain the importance of ALL the clauses found in the Memorandum of Association (10 Marks)

- What is your understanding of Constructive Notice (5 Marks)

Answer 1

The following are some of the most important consequences of incorporation under the Associations Incorporation Act 1985 (SA).

Note: the Corporate Affairs Commission (referred to below) is part of Consumer and Business Services.

1) Perpetual Succession

Upon incorporation, the association becomes a body corporate with perpetual succession, meaning it can continue to exist indefinitely, regardless of changes to its membership.

2) Common Seal

An incorporated association must have a common seal. For more information about this, see Powers of incorporated associations.

3) Corporate Name

The association's name is chosen by the association, but must be approved by the Corporate Affairs Commission, and is the corporate name appearing on the certificate of incorporation sent to the association by them. The word 'Incorporated' is part of the association's name and must come at the end of the name. The abbreviation 'Inc.' may be used.

4) Property

The ownership of all real and personal property of an unincorporated association is automatically transferred from the members and the trustees, if any, to the newly incorporated association (subject to any trusts that may affect the property). However, it may still be necessary to register these changes separately (for example, land held by trustees must be transferred to the association and this must be registered at the Lands Titles Office).

5) Rights and Liabilities

The rights or liabilities of an organisation continue and are not 'wiped out' when it incorporates. Any contracts the association was involved in continue to operate. Although members are not personally liable for debts of an incorporated association (unless the rules of the association provide for some liability), they will still be responsible for debts incurred on behalf of the association before incorporation. Members can be required to contribute to the payment of these prior debts.

2)

a)Name Clause

This particular clause states the proposed name of the limited liability company

b) Registered Office Clause

This clause lists of the locations where the company operates and can be located. The physical location of a registered office determines the jurisdiction it falls under, as well as which court a Registrar of Companies it’s registered with. In addition, it also states the full address of the registered office, which simplifies communications.

c) Objective or Objects Clause

The objects clause or the objective clause is necessary for a memorandum of association. It limits and defines the scope of a company’s operations. It provides details on the scope of activity the company will undertake and explains how capital provided by members will be used.

d) Liability Clause

This clause explains the liability of every member of the company. For a limited by shares company, the liability of every member will not more than each share’s face value. For a limited by guarantee company, the clause defines the liability of every individual stakeholder. For an unlimited company, the clause wouldn’t be included as stakeholders are entirely liable of the business.

e) Capital Clause

This clauses lists down the information regarding the total capital that is held by a proposed company. The amount is called authorized capital of a company. Companies are not permitted in collecting more money than what’s listed under the authorized capital.

f) Association Clause

The association clause provides confirmation that all individuals that have signed at the bottom of the memorandum of association intend to be a part of the company. The MOA needs to have at least seven signatories.

3) Constructive notice is the legal fiction that signifies that a person or entity should have known, as a reasonable person would have, of a legal action taken or to be taken, even if they have no actual knowledge of it.