The following is a more accessble plain text extract of the PDF sample above, taken from our Business Associations I Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
Class 1: Introduction to the Corporation and incorporating under Australian law
Look at remedies if things go wrong in companies. In the Queensland floods the question was should they take a generous look at the policies that they provide? What is corporate social responsibility? The things that are strictly legal and those which are voluntary. How should we treat companies as a political, social matter and whose perspective should we judge them from? Shareholders?
Co-operatives have the Co-operative Act. They are not companies but they are corporations.
Use the term limited which means limited liability. There are many shareholders.
People buy stocks on the Australian Securities Exchange. Shareholders may dismiss the directors.
Perpetual succession captures the idea that the shareholders come and go. The company is a legal entity in its own right.
Not for Profit Company limited by guarantee is slightly different. Not as many shareholders.
Proprietary companies have limits on the members they can have.
Business associations include partnerships. Transfer of interests is harder in this circumstance. They become individually liable for the loan if the others don’t pay. The shareholders in a company have the limited liability. Sole traders do not enjoy limited liability.
Section 45A has different stipulations for small and large proprietary companies.
Section 112 tells you all the characteristics of the different public companies.
The stakeholders include creditors (lending, floating charge but section 1324 gives them rights to get injunctions but they have more effective remedies in their lending agreement), employees, governments, consumers, environment, community (media)
The partnership have special duties to one another. They have fiduciary duties. They come from Trust law.
History of corporations
15th/17th century- joint stock companies
1720- south sea bubble
18/19th centuries- deed of settlement companies
1844- joint stock companies act
1855- Limited Liability Act
1856- Joint Stock Companies Act (Consol)
Isn’t limited liability a device for fraud
1989-1999: ASC (now ASIC). Corporations law. Re Wakim (all the decisions of the Federal Court were found to be unconstitutional so states had to pass individual legislation to say that all the decisions in the federal court were state decisions and they had to refer their corporations law to the commonwealth government- state power is unconstitutional when vested in the national government).
ASIC Act 1989- referral of state power, treasure/ASIC/ASX, Federal/state and cross vesting, AAT/state criminal jurisdiction.
Corporations Act 2001
Page 26-40 History of how the regulation of corporate enterprise evolved
Corporations are legal persons.
The corporate group enjoys perpetual existence. It can more easily bring suit against strangers and even its own members. Its common seal can authenticate its acts and distinguish it from the acts of individual members. Transferability of shares. Distinction between group liability and personal liability of members.
Voting rights are based on the size of the shareholding. One vote, one share. Governors and associates of the companies were held to rigorous trustee standard of disinterested service- fiduciaries. The company is a personality distinct from its members.
There were strong economic factors in the 18th century making it imperative that a form of business association be available to facilitate the aggregation of investment capital. This was due to expansion of foreign trade, industrialisation and the growth of the factory system.
The Bubble Act was passed. It was repealed in 1825. It did not establish a distinct legal regime for the joint stock company.
The state adopts a limited interventionism by requiring disclosure as to specified matters perceived to be material to the judgment of potential investors. The state does not attempt any merits review of the efficacy or equity of the proposed venture or the interests in it which are being offered to investors.
The Joint Stock Companies Act 1844 UK established accountability mechanisms through obligations with respect to the holding of company meetings and the audit and publication of company accounts. There was the deed of settlement of a company. It vested management powers to directors and directed that shareholders would not act in the management concerns of the company.
The shareholders had limited liability in the Limitation of liability Act 1855 UK.
Page 40-52 Phases of corporate regulation in Australia
The first native company was the bank of NSW in 1817 formed as a partnership. It had shares. It had a deed of settlement in 1828.
There were chartered companies incorporated by royal prerogative and clothed with privilege for the benefit of English capital. This included the Australian Agricultural Company which was granted a million acres of land. Van Diemen’s Land Company but the land was poorly chosen.
The Uniform Companies Acts were adopted in 1962.
There was a stock market boom in 1969. The Poseidon boom.
Whitlam Labor government introduced the Corporations and Securities Industry Bill 1974. It proposed financial reporting obligations on companies which solicited public investment in their securities and sought to prevent market abuse through manipulation and insider trading.
The Corporations Act 1989 gives the commonwealth in section 51(xx) the power to legislate with respect to foreign corporations and trading or financial corporations formed with the limits of the Commonwealth.
The Corporations Agreement 2002 provided the framework for the national scheme. The Ministerial Council is at the centre of the scheme. It provides the machinery to alter the Corporations legislation. The parliament must consult the ministerial council before altering the Corporations legislation. The approval of the council is not required. They need approval from at least three state or territory ministers.
Page 53-58 Role of the Australian Securities and Investment Commission (ASIC) and the Australian Securities Exchange (ASX)
ASIC is an independent regulatory agency. It is charged with legislative implementation and the routine administration of the Corporations Act. It must maintain the performance of companies. It has extensive powers to investigate breaches of the national law, take civil enforcement action, initiate criminal prosecutions and exercise adjudicative powers. They can exempt persons and companies from compliance of sections in the Corporations Act. They may apply for a declaration by the Takeovers Panel that an acquisition of shares is unacceptable.
There are between 3-8 members of ASIC appointed by the Governor General on the nomination of the Commonwealth Minister under section 9(2) of the Australian Securities and Investment Commission Act 2001. The Minister must gazette a copy of the direction and lay it before each house in Parliament.
A Minister may also direct ASIC to investigate suspected contraventions of the legislation.
ASIC registers companies, maintains a public database for corporate information, regulates financial markets and enforces obligations. Their powers were expanded in 1998 with respect to consumer protection.
It deals with financial services including insurance, super and banking (excluding lending). It must promote market integrity and consumer protection within the financial system rather than separate product or industry specific regulation. This is expressed in the Trade Practices Act 1974.
Its consumer protection powers are disclosure requirements, licensing of market intermediaries, the prevention of market abuse and unfair conduct and the operation of complaints handling and resolution processes.
The Australian Prudential Regulation Authority (APRA) has responsibility for prudential regulation of the financial sector. That is oversight of capacity to honour financial commitments.
The RBA is responsible for monetary policy and the stability of the financial system generally.
The ACCC has the competition laws as they affect financial services and products.
The ASX was formed in 1985. It merged with the Sydney Future Stock Exchange in 2006. It became a public company in 1998. Its shares are traded on the ASX. The Corporations Legislation was changed to strengthen the ASX’s obligations to ensure oversight of the conduct and integrity of market participants. It must operate a fair, orderly transparent market.
In 2008 there were 2,226 entities listed on the ASX. ASX also operates markets for debt securities, futures and options and warrants.
There are ASX listing rules. It is a market regulator and surveys market activity to identify unusual trades for investigation of possible insider trading or market manipulation. It enforces it’s listing rules. Listing enables companies to raise funds, makes the security more appealing, shows value of the company, promotes investor confidence because of monitoring. But there are listing fees, share registery, annual reports and investor relations and more regulation.
Page 92-116 The reasons why business people would choose a corporation as the legal form for operating a business and how incorporation is effected.
The types of business are sole trader, unincorporated associations and corporations.
Under unincorporated corporations you can have a partnership, limited partnership, joint venture, syndicate, trust or unincorporated non profit association.
Under corporations you can have an associations incorporated under the Associations Incorporation Acts, co-operatives, chartered corporations, corporations created by an Act of Parliament, Banks and insurance companies, credit unions, permanent building societies and friendly societies, companies under the corporations act (public companies limited by shares, public companies limited by guarantee, proprietary companies limited by shares, public unlimited companies, proprietary unlimited companies and no liability companies).
The present concern companies is the unincorporated companies.
There is a wide freedom of choice. Partnership above a certain size should incorporate to prevent mischief arising from large trading undertakings being carried on by large fluctuating bodies.
Section 20 of the CA prohibits the formation of more than 20 members of a partnership or association. However medical practitioners are allowed up to 50, legal practitioners up to 400 members and 1000 for accountants.
Non profit means charitable functions, educational or scientific activities like private schools, activities that are sporting or social or cultural like the RSL, activities to further professional or trade interests like law societies, activities for mutual benefit of members like credit unions. The charities don’t get taxed but sport groups make a lot of profit. The incorporated association has been established for non profit groups by legislation.
Incorporation can minimise tax imposts. That is why elaborate structures are created. It also helps aggregate funds on a large scale.
Aboriginals have special incorporation under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth). They can design corporate structures to best suit their needs.
A sole trader is not involved in business association. It is an individual conducting a business alone. They are personally liable for the debts and liabilities. There are no formalities for formation. They require an ABN.
Co-operatives offer limited liability for their members and provide an alternative incorporated form for the pursuit of business. They have open membership with no discrimination, democratic control like one vote per member regardless of amount of shares, returns on share capital is strictly limited and must distribute to members according to their proportion of patronage and commitment to the education of members and co-operation with other co-ops.
The co-operative is expressed to be a body corporate by the name under which it is registered under section 21.
The business is managed by a board of directors elected by members under section 204 and 205.
Members are only liable for the amount unpaid on shares under section 76.
Accounts must be audited annually under s. 243 and an annual report lodged with the Registrar under s.252.
The Registrar has discretion whether to register a co-operative. It must serve the interests of members under s. 19 and 20. They can direct them to cease borrowing and require repayment or refinancing of debts and the investment of proceeds under s. 264. They can direct them to transfer their engagements to another co-op under s. 314. They can be wound up with a certificate and the Registrar will appoint a liquidator under s.324 and inspectors can be appointed to look at documents under s. 372-384.
A member can retire from membership and have capital returned to them.
Incorporated associations are used for non profit associations. They permit association by 5 or more people formed for the object of trading or securing pecuniary gain for its members under s. 7(2)(a). They must appoint a public officer under s.22-25 to act as a liaison between the association and the Department of Fair Trading. They must notify the Department of changes to its objects and rules and identity of public officer under s, 20, 21, 23, 25. There must be a general meeting of members annually to receive a statement of the income and expenditure under s.26. A copy must be lodged to the Department by the public officer under s.27. $2 million must be insured under public liability insurance.
The unincorporated association does expose its committee members to personal liability for the contracts and torts of the association. But incorporated associations are not liable to the discharge of the associations liabilities under s. 16. But committee members will be liable if there is no maintained public liability insurance for the prescribed amount and the liability is incurred under s. 45 or the association incurs liability fraudulently or without reasonable expectation that the debt will be discharged when it falls due under s.38.
Incorporated associations are dedicated to non profit objects. A distribution of surplus property must be approved by the Director General and cannot be vested in another non profit association unless it has substantially similar objects under s.53.
But these companies deal with the state regulator and cannot be national so there is a preference to register as a guarantee company and deal with ASIC.
Factors affecting the decision to incorporate:
Financing. It allows a floating charge over property.
Partnerships are more flexible however and no formality is needed for their creation. There is no registration or internal structure or reporting obligations. They can be dissolved without formality. The CA requires incorporated companies to disclose information continuously. There are constraints.
Historically incorporations were taxed at the corporate level and then in the hands of its members. But dividend imputation was introduced to eliminate double taxation. There are imputation measures.
ASIC will incorporate a company under s. 117(2) according to the type of company, the proposed name, the names and addresses of persons who consent to be members, its proposed registered office and principal place of business and details of proposed share capital. A company may be named after its Australian Company Number or reserve the proposed name prior to incorporation under s. 152. Availability searches must be made for the name. It must not be a name already reserved or included on the national business names register or declared by regulation under s.147 to be unacceptable (i.e. names like made in Australia that have a connection with the Crown are not allowed). A company will get a certificate of incorporation to show they have complied with all requirements of incorporation.
It takes a while to become incorporated so shelf companies are used in the mean time and incorporated in advance of need. The company only comes into existence with registration
Corporations Act 2001 (Cth):
For an overview of the main provisions for incorporation and management of a small company, see the “Small Business Guide” in Part 1.5 (following s 111J).
CORPORATIONS ACT 2001 - SECT 111J
Small business guide
(1) If, because of:
(a) regulations made under this Act; or
the small business guide as set out in Part1.5 has become out of date, the regulations may set out modifications of the guide that would bring it up to date. The guide then is to be read as if it were so modified.
(2) The small business guide is divided into sections (numbered 1, 2, 3 ... ) and the sections are divided into paragraphs(numbered 1.1, 1.2, 1.3 ... ). For example, a reference in the guide to 3.1 is a reference to paragraph 3.1 of the guide.
This guide summarises the main rules in the Corporations Act (the Corporations Act 2001 ) that apply to proprietary companies limited by shares--the most common type of company used by small business. The guide gives a general overview of the Corporations Act as it applies to those companies and directs readers to the operative provisions in the Corporations Act.
The notes in square brackets at the end of paragraphs in the guide indicate the main provisions of the Corporations Act , the regulations made under the Corporations Act, and ASIC Practice Notes that are relevant to the information in the paragraphs.
Other Commonwealth, State and Territory laws also impose obligations on proprietary companies and their operators.
1 What registration means
1.1 Separate legal entity that has its own powers
As far as the law is concerned, a company has a separate legal existence that is distinct from that of its owners, managers, operators, employees and agents. A company has its own property, its own rights and its own obligations. A company's money and other assets belong to the company and must be used for the company's purposes.
A company has the powers of an individual, including the powers to:
• enter into contracts
• sue and be sued.
[sections119, 124--125, 601AA--601AD]
Shareholders of a company are not liable (in their capacity as shareholders) for the company's debts. As shareholders, their only obligation is to pay the company any amount unpaid on their shares if they are called upon to do so. However, particularly if a shareholder is also a director, this limitation may be affected by other laws and the commercial practices discussed in 1.3 and 1.4.
itself is unable to pay those debts as they fall due.
[sections197, 344, 588G, 588J, 588M, 1317H]
The director of a company may, for example, be asked by a bank to give a mortgage over their house to secure the company's repayment of a loan. If the company does not repay the loan as agreed with the bank, the director may lose the house.
1.5 Continuous existence
A company continues to exist even if 1 or more of its shareholders or directors sells their shares, dies or leaves the company. If a company has only 1 shareholder who is also the only director of the company and that person dies, their personal representative is able to ensure that the company continues to operate.
1.6 Rules for the internal management of a company
Some of these rules are mandatory for all companies. There are a few special rules for single shareholder/single director companies.
A company does not need to have a separate constitution of its own; it can simply take advantage of the rules in the Corporations Act. The company will need a constitution only if it wants to displace, modify or add to the replaceable rules.
[sections134‑141 and 198E]
1.7 How a company acts
The directors of a company are responsible for managing the company's business. It is a replaceable rule (see 1.6) that generally the directors may exercise all the powers of the company except a power that the Corporations Act, a replaceable rule or a provision of the company's constitution (if any) requires the company to exercise in general meeting.
There are 2 ways that directors may pass resolutions:
• at a meeting; or
Shareholders can make decisions about the company by passing a resolution, usually at a meeting. A "special resolution" usually involves more important questions affecting the company as a whole or the rights of some or all of its shareholders.
There are 2 ways that shareholders may pass a resolution:
• at a meeting; or
• by having all of the shareholders record and sign their decision.
If a meeting is held, an ordinary resolution must be passed by a majority of the votes cast by shareholders of the company entitled to vote on the resolution at the meeting in person or by proxy (if proxies are allowed). A special resolution must be passed by at least 75% of the votes cast by shareholders of the company entitled to vote on the resolution and who vote at the meeting in person or by proxy (if proxies are allowed).
[sections9 ( special resolution ), 249A, 249B, 249L, 251A]
1.10 What others can assume about the company
Anyone who does any business with the company is entitled to assume that the company has a legal right to conduct that business unless the person knows, or suspects, otherwise. For example, an outsider dealing with the company is entitled to assume:
2 The company structure for small business
Generally, a proprietary company limited by shares is the most suitable company for use by small business. Such a proprietary company must have a least 1 shareholder but no more than 50 shareholders (not counting employee shareholders). It may have 1 or more directors.
3 Setting up a new company
The operators of small businesses can either buy "shelf" companies or set up new companies themselves.
3.1 "Shelf" companies
The operator of a small business may find it more convenient to buy a "shelf" company (a company that has already been registered but has not traded) from businesses which set up companies for this purpose or from some legal or accounting firms.
3.2 Setting up a company
To obtain registration, a person must lodge a properly completed application form with ASIC. The form must set out certain information including details of every person who has consented to be a shareholder, director or company secretary of the company.
[sections117--119, 135--136, 140]
3.3 ACN and name
In practice, a new company must have a name that is different from the name of a company that is already registered. A proprietary company limited by shares must have the words "Proprietary Limited" as part of its name. Those words can be abbreviated to "Pty Ltd".
A proprietary company may adopt its ACN as its name. If it does so, its name must also contain the words "Australian Company Number" (which can be abbreviated to "ACN"). For example, the company's name might be "ACN 123 456 789 Pty Ltd".
A company can ratify a contract entered into by someone on its behalf or for its benefit before it was registered. If the company does not ratify the contract, the person who entered into the contract may be personally liable.
A person listed with their consent as a shareholder, director or company secretary in the application for registration of the company becomes a shareholder, director or company secretary of the company on its registration.
3.6 Issuing shares
It is a replaceable rule (see 1.6) that, before issuing new shares, a company must first offer them to the existing shareholders in the proportions that the shareholders already hold. A company may issue shares at a price it determines.
A company must have a registered office in Australia and must inform ASIC of the location of the office. A post office box cannot be the registered office of a company. The purpose of the registered office is to have a place where all communications and notices to the company may be sent.
[sections100, 142, 143, 173, 1300]
3.8 Principal place of business
3.9 Registers kept by the company
• the company's principal place of business; or
• a place (whether on premises of the company or of someone else) where the work in maintaining the register is done; or
• another place approved by ASIC.
A register may be kept either in a bound or looseleaf book or on computer.
If a register is kept on computer, its contents must be capable of being printed out in hard copy.
[sections172, 1300--1302, 1306]
3.10 Register of shareholders
• the names and addresses of its shareholders; and
• details of shares held by individual shareholders.
3.11 Register of charges
4 Continuing obligations after the company is set up
The Corporations Act and other laws impose obligations on companies themselves and on their directors and company secretaries. Some of the more important obligations imposed under the Corporations Act are discussed below.
4.1 Use of company name and ACN
The name of a company must be shown at all the company's business premises (including its registered office) that are open to the public. The company's name and its ACN or ABN (if the last 9 digits are the same, and in the same order, as the last 9 digits of its ACN) must appear:
• on some of its public documents; and
• on its cheques and negotiable instruments; and
• if it has one, on its common seal.
[sections123, 144, 147--156,
ASIC Practice Note 47]
Each year, ASIC issues each company with an extract of particulars within 2 weeks of the company's review date (which is generally the anniversary of the company's registration). The extract includes details recorded on ASIC's database such as:
• issued shares and options granted;
• details of its shareholders;
• address of its registered office;
• address of its principal place of business.
[Sections346A and 346C, 352]
4.3 Review fee
[Corporations (Review Fees) Act 2003]
4.4 Notification to ASIC of changes
|If...||the company must notify ASIC of the change...||see section...|
|1||a company issues shares||within 28 days after the issue||254X|
|2||a company changes the location of a register||within 7 days after the change||172, 1302|
|3||a company changes the address of its registered office or principal place of business||within 28 days after the change||142, 146|
|4||a company changes its directors or company secretary||within 28 days after the change (unless the director or company secretary has notified ASIC of the change)||205B|
|5||there is a change in the name or address of the company's directors or secretary||within 28 days after the change||205B|
|6||a company creates certain kinds of charges||within 45 days after the charge is created||263|
|7||a company has a new ultimate holding company, or details about the ultimate holding company change||within 28 days after the change happens||349A|
any of the changes in items1 to 7 means that:
(b) the company must add or alter particulars in its member register kept under section169, and as a result, details about the number and class of shares on issue, or the amount paid and unpaid on the shares, alter.
|within the time determined under the table in section178D|| |
5.1 Who can be a director
Only an individual who is at least 18 years old can be a director. If a company has only 1 director, they must ordinarily reside in Australia. If a company has more than 1 director, at least 1 of the directors must ordinarily reside in Australia.
In some circumstances, the Corporations Act imposes the duties and obligations of a director on a person who, although not formally appointed as a director of a company, nevertheless acts as a director or gives instructions to the formally appointed directors as to how they should act.
Generally, a director may resign by giving notice of the resignation to the company. A director who resigns may notify ASIC of the resignation. If the director does not do so, the company must notify ASIC of the director's resignation.
[sections9, 201A, 201B, 201D, 205A, 205B and 206A‑206G, 228‑230 and 242 and subsection 1317EA(3)]
5.2 Appointment of new directors
It is a replaceable rule (see 1.6) that shareholders may appoint directors by resolution at a general meeting.
[section 201G ]
5.3 Duties and liabilities of directors
• to act in good faith
• to act honestly
• to exercise care and diligence
• to prevent the company trading while it is unable to pay its debts
A director who fails to perform their duties:
• may be prohibited from managing a company.
[Sections180, 181, 182, 183, 184, 475, 530A, 588G, 596, 601AE, 601AH, 1317H]
5.4 Company secretaries
A company other than a proprietary company must have a company secretary. However, a proprietary company may choose to have a company secretary. The directors appoint the company secretary. A company secretary must be at least 18 years old. If a company has only 1 company secretary, they must ordinarily reside in Australia. If a company has more than 1 company secretary, at least 1 of them must ordinarily reside in Australia.
Generally, a company secretary may resign by giving written notice of the resignation to the company. A company secretary who resigns may notify ASIC of the resignation. If the company secretary does not do so, the company must notify ASIC of the company secretary's resignation.
• responds, if necessary, to an extract of particulars that it receives and that it responds to any return of particulars that it receives.
[sections83, 142, 178A, 178C, 188, 204A‑204G, 205A, 205B, 346C, 348D, 349A, 601AD, 601AH]
6 Shares and shareholders
6.1 Becoming a shareholder and ceasing to be a shareholder
Some of the ways in which a person ceases to be a shareholder are:
[sections117, 120, 601AA--601AD]
6.2 Classes of shares
6.3 Meetings of shareholders
Shareholders who hold at least 5% of the votes which may be cast at a general meeting of a company have the power to call and hold a meeting themselves or to require the directors to call and hold a meeting. Meetings may be held regularly or to resolve specific questions about the management or business of the company.
6.4 Voting rights
Different rights to vote at meetings of shareholders may attach to different classes of shares. It is a replaceable rule (see 1.6) that, subject to those different rights, each shareholder has 1 vote on a show of hands and, on a poll, 1 vote for each share held.
6.5 Buying and selling shares
A shareholder may sell their shares but only if the sale would not breach the company's constitution (if any). It is a replaceable rule (see 1.6) that the directors have a discretion to refuse to register a transfer of shares.
7 Signing company documents
A company's power to sign, discharge and otherwise deal with contracts can be exercised by an individual acting with the company's authority and on its behalf. A company can deal with contracts without using a common seal.
A company may execute a document by having it signed by:
A company is not required to have a common seal. If it does, the seal must show the company's name and its ACN or ABN (if the last 9 digits are the same, and in the same order, as the last 9 digits of its ACN). The seal is equivalent to the company's signature and may be used on important company documents such as mortgages.
8 Funding the company's operations
The shareholders may fund the company's operations by lending money to the company or by taking up other shares in the company. Except if it is raising funds from its own employees or shareholders, a proprietary company must not engage in any fundraising activity that would require disclosure to investors under Chapter6D (for example, advertising in a newspaper inviting people to invest in the company).
9 Returns to shareholders
Shareholders can take money out of the company in a number of ways, but only if the company complies with its constitution (if any), the Corporations Act and all other relevant laws. If a company pays out money in a way that results in the company being unable to pay its debts as they fall due, its directors may be liable:
• to pay compensation; and
• for criminal and civil penalties.
[sections588G, 1317E, 1317G, 1317H, 1317P]
Dividends are payments to shareholders. They can only be paid if:
9.2 Buy‑back of shares
A company can buy back shares from shareholders.
9.4 Distribution of surplus assets on winding up
If a company is wound up and there are any assets left over after all the company's debts have been paid, the surplus is distributed to shareholders in accordance with the rights attaching to their shares.
10.1 The small/large distinction
The accounting requirements imposed on a proprietary company under the Corporations Act depend on whether the company is classified as small or large. A company's classification can change from 1 financial year to another as its circumstances change.
• gross operating revenue of less than $10 million for the year
• gross assets of less than $5 million at the end of the year
• fewer than 50 employees at the end of the year.
10.2 Financial records
Under the Corporations Act, all proprietary companies must keep sufficient financial records to record and explain their transactions and financial position and to allow true and fair financial statements to be prepared and audited. Financial record here means some kind of systematic record of the company's financial transactions--not merely a collection of receipts, invoices, bank statements and cheque butts. Financial records may be kept on computer.
The Corporations Act requires a small proprietary company to prepare an annual financial report (an annual profit and loss statement, a balance sheet and a statement of cash flows) and a directors' report (about the company's operations, dividends paid or recommended, options issued etc.) if:
• the shareholders with at least 5% of the votes in the company direct it to do so; or
• ASIC directs it to do so.
Although the Corporations Act itself may not require a small proprietary company to prepare a financial report except in the circumstances mentioned, the company may need to prepare the annual financial reports for the purposes of other laws (for example, income tax laws). Moreover, good business practice may also make it advisable for the company to prepare the financial reports so that it can monitor and better manage its financial position.
Large proprietary companies must prepare annual financial reports and a directors' report, have the financial report audited and send both reports to shareholders. They must also lodge the annual financial reports with ASIC unless exempted.
11 Disagreements within the company
11.1 Special problems faced by minority shareholders
There are remedies available to a shareholder of a company if:
11.2 Buy--back of shares
11.3 Selling shares
A shareholder in a company who wants to sever their relationship with the company may decide to sell their shares. However, the shareholder may not be able to sell their shares readily--particularly if they want to sell their shares to someone who is not an existing shareholder. Some of the difficulties they may face in that case are:
[sections995, 707, 1091D--1091E]
12 Companies in financial trouble
12.1 Voluntary administration
If a company experiences financial problems, the directors may appoint an administrator to take over the operations of the company to see if the company's creditors and the company can work out a solution to the company's problems.
A receiver, or receiver and manager, may be appointed by order of a Court or under an agreement with a secured creditor to take over some or all of the assets of a company. Generally this would occur if the company is in financial difficulty. A receiver may be appointed, for example, because an amount owed to a secured creditor is overdue.
12.3 Winding up and distribution
A liquidator is appointed:
[Parts5.4, 5.4B, 5.5].
12.5 Order of payment of debts
[Division6 of Part5.6]
12.6 Cancellation of registration
45A, 112-114 Types of companies.
CORPORATIONS ACT 2001 - SECT 45A
Note 2: A proprietary company must:
* have no more than 50 non‑employee shareholders
* not do anything that would require disclosure to investors under Chapter6D (except in limited circumstances).
Small proprietary company
(a) the consolidated revenue for the financial year of the company and the entities it controls (if any) is less than $25 million, or any other amount prescribed by the regulations for the purposes of this paragraph;
(b) the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls (if any) is less than $12.5 million, or any other amount prescribed by the regulations for the purposes of this paragraph;
(c) the company and the entities it controls (if any) have fewer than 50, or any other number prescribed by the regulations for the purposes of this paragraph, employees at the end of the financial year.
(a) the consolidated revenue for the financial year of the company and the entities it controls (if any) is $25 million, or any other amount prescribed by the regulations for the purposes of paragraph(2)(a), or more;
(b) the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls (if any) is $12.5 million, or any other amount prescribed by the regulations for the purposes of paragraph(2)(b), or more;
(c) the company and the entities it controls (if any) have 50, or any other number prescribed by the regulations for the purposes of paragraph(2)(c), or more employees at the end of the financial year.
(4) For the purposes of this section, the question whether a proprietary company controls an entity is to be decided in accordance with the accounting standards made for the purposes of paragraph 295(2)(b) (even if the standards do not otherwise apply to the company).
(5) In counting employees for the purposes of subsections(2) and (3), take part‑time employees into account as an appropriate fraction of a full‑time equivalent.
(6) Consolidated revenue and the value of consolidated gross assets are to be calculated for the purposes of this section in accordance with accounting standards in force at the relevant time (even if the standard does not otherwise apply to the financial year of some or all of the companies concerned).
CORPORATIONS ACT 2001 - SECT 112
Types of companies
Types of companies
(1) The following types of companies can be registered under this Act:
|Proprietary companies||Limited by shares|
|Unlimited with share capital|
|Public companies||Limited by shares|
|Limited by guarantee|
|Unlimited with share capital|
|No liability company|
Note: Other types of companies that were previously allowed continue to exist under the Part10.1 transitionals.
No liability companies
(a) the company has a share capital; and
Note 2: Special provisions on no liability companies are found in the provisions referred to in the following table:
|No liability company provisions|
|1||names||148, 156, 162|
|2||terms of issue of shares||254B|
|3||liability on partly‑paid shares||254M|
|5||winding up||477‑478, 483, 514|
|6||registering a body as a company||610BA|
|7||transitional||the Part10.1 transitionals|
(a) let the whole or proportion of a mine or claim on tribute; or
(b) make any contract for working any land on tribute;
(c) the letting or contract is approved by a special resolution; or
(d) no such letting or contract has been made within the period of 2 years immediately preceding the proposed letting or contract.
(5) An act or transaction is not invalid merely because of a contravention of subsection(3) or (4).
CORPORATIONS ACT 2001 - SECT 113
(2) In applying subsection(1):
(b) an employee shareholder is:
(a) existing shareholders of the company; or
Note: For strict liability , see section6.1 of the Criminal Code .
(4) An act or transaction is not invalid merely because of a contravention of subsection(3).
CORPORATIONS ACT 2001 - SECT 114
Minimum of 1 member
117-121 Procedures for registration.
CORPORATIONS ACT 2001 - SECT 117
Applying for registration
Contents of the application
(2) The application must state the following:
(b) the company's proposed name (unless the ACN is to be used in its name);
(l) for a public company that is limited by shares or is an unlimited company, if shares will be issued for non‑cash consideration--the prescribed particulars about the issue of the shares, unless the shares will be issued under a written contract and a copy of the contract is lodged with the application;
(i) the name of the ultimate holding company;
Note 1: Paragraph(b)--sections147 and 152 deal with the availability and reservation of names.
Note 2: Paragraph(f)--the address that must be stated is usually the residential address, although an alternative address can sometimes be stated instead (see section205D).
Note 3: Paragraph(g)--if the company is not to be the occupier of premises at the address of its registered office, the application must state that the occupier has consented to the address being specified in the application and has not withdrawn that consent (see section100).
Note 4: Paragraph(h)--for standard opening hours , see section9.
(4) The application must be in the prescribed form.
(5) An applicant must have the consents and agreements referred to in subsection(2) when the application is lodged. After the company is registered, the applicant must give the consents and agreements to the company. The company must keep the consents and agreements.
Note: For strict liability , see section6.1 of the Criminal Code .
CORPORATIONS ACT 2001 - SECT 118
ASIC gives company ACN, registers company and issues certificate
(a) give the company an ACN; and
(b) register the company; and
(c) issue a certificate that states:
(i) the company's name; and
(ii) the company's ACN; and
(iii) the company's type; and
(vi) the date of registration.
Note: For the evidentiary value of a certificate of registration, see subsection 1274(7A).
ASIC must keep record of registration
CORPORATIONS ACT 2001 - SECT 119
Company comes into existence on registration
CORPORATIONS ACT 2001 - SECT 119A
Jurisdiction of incorporation and jurisdiction of registration
Jurisdiction in which company incorporated
(1) A company is incorporated in this jurisdiction.
Jurisdiction of registration
(a) the State or Territory specified:
This subsection has effect subject to subsection(3).
Note 3: A law of a State or Territory may impose obligations, or confer rights or powers, on a person by reference to the State or Territory in which a company is taken to be registered for the purposes of this Act. For example, a State or Territory law dealing with stamp duty on share transfers might impose duty on transfers of shares in companies that are taken to be registered in that State or Territory for the purposes of this Act.
(b) the procedural requirements specified in the regulations are satisfied.
CORPORATIONS ACT 2001 - SECT 120
Members, directors and company secretary of a company
(1) A person becomes a member, director or company secretary of a company on registration if the person is specified in the application with their consent as a proposed member, director or company secretary of the company.
CORPORATIONS ACT 2001 - SECT 121
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