The constitution of Big Hopes Pty Ltd contains a clause which enables the majority shareholders to buy the minority shareholders' shares at market value. The clause goes on to provide that this power is given to the majority shareholders so that the company would not have the added taxation and administrative costs that are consequent upon having such holdings on its share register. Is this legal? Explain whether it would be possible to alter the constitution? If so, how?

?must include case law (where relevant) and the provisions of the Corporations Act 2001.?

?Refer to the answer method of the given sample?

Sample Question 1 David, Ftoger and Brown set up a land development company called DRB Developments Pty Ltd and they are the company's only shareholders. Brown is a solicitor by training, and the constitution of DFtB Developments Pty Ltd nominates that Brown will be the company.r solicitor for any land purchases or sales made by the company. The company's constitution further provides that anyr disputes which arise between the company and its members should be first referred to an arbitrator before there are any court proceedings. After a number of years, David and Roger meet another solicitor who they think is more efficient than Brown. They {David and Roger}, as directors, want to appoint him as DRB Developments Ptv Ltd's solicitor in place of Brown. Brown is upset about this decision and intends to bring legal proceedings against DHB Developments Pty Ltd over the matter. Advise the company as to their legal position. Sample Answer Section 140 of the Corporations Act provides that the constitution of a company and any replaceable rules that apply have effect as a contract: (Ilia) Between the company and each member; and (1)be Between the company and each director and company secretary," and {1)ch Between a member and each other member; There are two particular terms of this statutory contract for DRB Developments Pty ttd. The first is the provision appointing Brown as the solicitor, this being a term which Brown would no doubt wish to enforce, and the second is the arbitration provision. - Since this was a term of the constitution that purported to appoint a person as a solicitor for the company, then that was not something which normally was a member's right ex v Positive Government Security life Assurance Co Ltd - distinction between rights in a capacity as a member {enforceable under the constitution) and other rights in a personal capacity. - Examples of rights enforceable by a member are rights which, generally, are rights available to all members egually, such as the right to proper notice of meetings, rights to vote at meetings, rights to receive dividends within classes of shares. Thus, the term (in the constitution) which purported to appoint Brown as solicitor does not confer a membership right and as such it would not be an enforceable right under s 140. The second relevant term, being the arbitration clause, would be a right available to all members and to the company - Hickman v Kent or Romney Marsh Sneepbreeders' Association. However, given that it is unlikely that Brown would have any enforceable right under the constitution to reinstatement as the solicitor, it would be unnecessary for the company to have the arbitration clause enforced