Cecily Zamora
The definition of carrying on a business varies across different jurisdictions. In Australia, case law has developed 'indicia' to determine whether an entity carries on a business. For instance, a foreign company carrying on a business in Australia must register with the Australian Securities and Investment Commission (ASIC). In India, the Supreme Court case of Bacha F. Guzdar v. CIT, Bombay, ruled that a shareholder is not a part owner of a company or its property, but rather has rights such as voting. Additionally, the Delhi High Court defined carrying on a business as having the purpose and prospect of profit. This aligns with the general understanding that carrying on a business involves engaging in regular business activities with the intention of making a profit.
| Characteristics | Values |
|---|---|
| Regularity of activities | Repetition and regularity of a company's activities are relevant when determining if a company carries on a business. |
| Purpose and prospect of profit | The nature of a company's activities and whether they are for profit are critical in determining whether it is carrying on a business. |
| Single act or transactions | Single acts or transactions may amount to carrying on a business if they are intended to be repeated. |
| Registration requirements | Foreign companies carrying on a business in Australia must register with the Australian Securities and Investment Commission (ASIC). |
| Indicating factors | In Australia, case law has developed indicia that indicate whether an entity carries on a business. |
| Legal obligations | Trustees may have a legal obligation to carry on the business in a trust until assets are distributed. |
| Tax implications | Carrying on a business may be necessary for certain corporate tax benefits. |
| Partnership requirements | In partnership law, partners must carry on business to maintain the property benefits of the partnership structure. |
| Company definition | A company is a voluntary association of persons who come together to carry on a business and share profits. |
| Company law | Company law in India is based on the law of agency, with each partner acting as an agent of the other(s). |
| Shareholder liability | If a company carries on business with less than the minimum number of members for an extended period, its members may be liable for the payment of debts. |
| Non-compete agreements | Non-compete agreements between employers and employees are enforceable through case law, as seen in Gilford Motor Company v. Horne [1933]. |
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What You'll Learn
Foreign companies in Australia must register with ASIC
In Australia, case law has developed 'indicia' to determine whether an entity 'carries on a business'. According to Section 21 of the Corporations Act 2001 (Cth), a body corporate with a place of business in Australia is deemed to carry on a business in the country.
Foreign companies intending to carry on a business in Australia must register with the Australian Securities and Investment Commission (ASIC). This is a legal requirement, and failure to do so may result in committing an offence under Australian law.
To register a foreign company in Australia, the following steps must be taken:
- Choose a unique company name that is not already in use by an Australian company or business.
- Ensure that foreign company directors have or have applied for a director identification number (director ID).
- Lodge an application for registration (Form 402) and submit the required documents, including certified copies of the entity's certificate of incorporation or registration, constitution, and memorandum of appointment of the local agent or power of attorney in favour of the local agent.
- Provide general information about the company, its operations, and how it will be managed.
- Comply with ongoing obligations, such as notifying ASIC of any changes to the company's registered office address or the residential address of directors within the specified time frames.
- Pay the required fees associated with registering a foreign company.
It is important to note that if a foreign company chooses to incorporate an Australian subsidiary to conduct business in Australia, it is not required to register as a foreign company. Additionally, certain entities, such as corporations sole, exempt public authorities, and unincorporated bodies formed outside Australia that cannot own property or take legal action in their country of origin, are not considered foreign companies and may have different registration requirements.
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Repetition and regularity of company activities
The degree of repetition and regularity of a company's activities is a critical factor in determining whether a company is carrying on a business. This concept, known as "indicia" in Australian case law, helps establish if an entity is engaging in regular business activities.
In the context of the Corporations Act, carrying on a business refers to performing activities with the intention of making a profit. This can include activities such as establishing a physical presence, managing property, or conducting transactions. The repetition and regularity of these activities indicate that a company is actively engaging in business operations.
For example, in the case of Valve Corporation v Australian Competition and Consumer Commission, Valve, a US-based company with no physical presence in Australia, was found to be carrying on business in Australia due to the repetitive and regular nature of its activities in the country. This case highlights that even companies without a physical presence in a jurisdiction can be considered to be carrying on a business there if their activities are repetitive and regular.
The repetition and regularity of company activities are also relevant in the context of taxation and regulatory compliance. For instance, the Income Tax Rates Act in Australia considers the nature of a company's activities and their purpose for profit when determining if it is carrying on a business. Similarly, the General Sales Tax Act in India defines a "dealer" as someone who carries on the business of selling goods, indicating that repetitive and regular sales activities would constitute carrying on a business.
In summary, the repetition and regularity of company activities are crucial factors in determining whether an entity is carrying on a business. This concept has been developed through case law and is relevant in various legal contexts, including corporate law, taxation, and privacy regulations. Companies must be mindful of these considerations, especially in the evolving landscape of digital business practices, to ensure compliance with the applicable laws and regulations.
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Trustees and legal obligations
Trustees are responsible for managing trusts and ensuring that beneficiaries' interests are protected. Trustees hold legal title to the trust property and must administer it according to its terms and the relevant state or common law. Trustees have a fiduciary duty to act in the best interests of the beneficiaries at all times. This includes a duty of loyalty, a duty of prudence, and subsidiary duties such as impartiality and the duty to inform and account to beneficiaries. Trustees must also keep proper accounts and records and be prepared to show them to the beneficiaries.
In some cases, a trustee may also be a beneficiary or settlor, or both. Typically, a trust involves the creation of a "deed of trust", which is a legal document signed by the settlor and trustee(s) outlining how the trust should be managed and administered. Trustees should be mindful that taking compensation without obtaining approval from the court is strongly discouraged. While it will not guarantee protection from liability, a trustee can acquire the beneficiaries' written consent before they act as evidence of good faith.
Trustees may request reimbursement for reasonable expenses related to trust administration, such as legal fees and accounting costs. They can be held personally liable for financial losses resulting from breaches of fiduciary duty or negligent actions. Beneficiaries can seek remedies such as removal of the trustee, compensation for losses, and other appropriate measures if trustees fail to fulfil their obligations. Common grounds for trustee removal include incompetence, misconduct, conflict of interest, or failure to fulfil fiduciary duties.
In the context of carrying on a business, a trustee may have a legal obligation to continue operating a business within a trust until the assets are distributed to the beneficiaries. This may be a requirement to receive certain beneficial corporate tax treatments. For example, in Australia, a foreign company carrying on a business in the country must register with the Australian Securities and Investment Commission (ASIC) to avoid committing an offence.
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Indian Law and company definitions
Indian company law recognises seven types of entities: private limited company, public company, sole proprietorship, one-person company, partnership, limited liability partnership (LLP), and unlimited company. The law governing companies in India is the Companies Act, 2013, which was enacted for the first time in 1913 and has since undergone several amendments.
The Companies Act, 2013 defines a 'company' as an association of persons who have come together to carry on some business and share the profits. This definition is in line with the Partnership Act, 1932, which defines a partnership as an association of two or more persons who have agreed to share the profits of a business they run together. It is important to note that, in India, a partnership is not a separate legal entity distinct from its members, and it cannot own property, incur debts, or sue any party in its name.
Indian law provides two main types of organisations for such associations: companies and partnerships. While the word 'company' is often used colloquially to refer to both, the statute regards companies and company law as distinct from partnerships and partnership law. This distinction is based on the law of agency, with each partner in a partnership becoming an agent of the other(s).
There are several case laws in India that involve the interpretation of 'carrying on business'. For example, in Gupta Sanitary Stores vs Union of India and Anr. (1984), the Delhi High Court interpreted the phrase "carries on business" within the context of section 20 of the Code of Civil Procedure. Another case, Bata Shoe Co. Ltd. vs Union of India (1953), also dealt with the interpretation of "carry on business". In this case, the court provided an explanation to enlarge the meaning of the words "carries on business" occurring in clauses (a) and (b) of a section.
Additionally, in the case of Re. Augustus Barnett & Sons Ltd. (1986), the court addressed the issue of carrying on business with the intent to defraud creditors. The court held that those who are knowingly parties to such conduct may be made personally liable for the debts or other liabilities of the company, but only if it is proved that the business was carried on with fraudulent intent.
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Gilford Motor Company v. Horne [1933]
Gilford Motor Co Ltd v Horne [1933] Ch 935 is a landmark UK company law case that delves into the concept of lifting the corporate veil. It sets a precedent for instances where the courts may disregard the separate legal identity of a company and treat its shareholders and directors as personally liable, especially when the company is employed as an instrument of fraud.
Mr EB Horne, formerly a managing director of Gilford Motor Co Ltd, had a contractual obligation (clause 9) not to solicit the customers of the company or engage in a similar business within a specific radius upon leaving its employment. Upon termination of his employment, Horne initiated his own business, undercutting the prices of Gilford Motor Co. Upon legal advice that he was likely in breach of his contract, Horne established a new company, JM Horne & Co Ltd, in which his wife and a friend were the sole shareholders and directors. They took over the business and continued its operations. Despite lacking a non-compete agreement with Gilford Motor, Horne's actions prompted the company to bring legal action, alleging that the new company was a fraudulent instrument to conceal Horne's illegitimate activities.
The Court of Appeal ruled in favour of Gilford Motor Co Ltd, upholding the restrictive covenant and extending its enforcement to the company created by Horne. The court found that the covenant was reasonable and necessary to protect Gilford's business interests. It was determined that Horne, as the former managing director, had intimate knowledge of Gilford's customers and could potentially use this to the company's detriment. The injunction was granted against both Horne and his company, preventing them from soliciting Gilford's customers and enforcing the restrictive covenant.
This case underscores the court's ability to unveil the true nature of transactions and prevent the misuse of corporate structures to perpetrate fraud or wrongdoing. It reinforces the principle that restraint clauses, if reasonable and necessary to protect legitimate business interests, are enforceable.
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Frequently asked questions
Carrying on a business means conducting a commercial enterprise for profit, where the designated service is a core activity of the business. It involves performing activities for a business organisation with the intention of making a profit.
In the case of *Gilford Motor Company v. Horne* in 1933, the defendant, Horne, was found to have formed a competing business with his wife and an employee, which was in breach of his agreement with his previous employer. Another example is *Jones v. Lipman* in 1962, which established that a company is an association of persons who contribute money to a common stock and are employed in some trade or business, sharing the profit and loss.
The indicia refer to the established indicators that suggest whether an entity carries on a business. For example, a body corporate carrying on a business in Australia includes the body establishing or using a share transfer or registration office in Australia. Another indicator is the degree of repetition and regularity of a company's activities.
If a foreign company carries on a business in Australia, they are required by law to register with the Australian Securities and Investment Commission (ASIC). Failure to do so may result in legal consequences. Similarly, in India, the Companies (Amendment) Act, 2017, states that if a company carries on business with less than the minimum number of members for more than six months, every member during that time shall be liable for the payment of the company's debts.
