12. Types of Companies & Corporations Act

Question 1

What is the definition of a company?

Answer 1

• an organisation established under the Corporations Act 2001 as a separate legal entity
• can enter into legal agreements in its own name, can own property, can sue and be sued in its own name

Question 2

What is the definition of a company limited by shares?

Answer 2

• a company in which the liability of the shareholders for company debts is limited to the amount owing on their shares
• must have the word “Limited” or the letters “Ltd” included in its name.

Question 3

Outline 5 advantages of companies limited by shares

Answer 3

• public companies listed on the ASX can raise large amounts of capital by issuing shares
• public companies can borrow large amounts of money
• shareholders of companies limited by shares know that they have the protection of limited liability
• a company has a continuous existence
• a person who has no business skills can become a part owner of a company listed on the ASX, and the shareholders in these companies can easily sell their shares

Question 4

Outline the 3 conditions that a large proprietary company must satisfy two of

Answer 4

1. the total revenue, for a financial year, is $50 million or more
2. the total gross assets, on the last day of a financial year, is $25 million or more
3. the company at the end of a financial year, has 100 employees or more

Question 5

Describe the reporting requirements of a large proprietary company

Answer 5

• must lodge a financial report with the ASIC each year
• this financial report includes a statement of comprehensive income, a cash flow statement and a balance sheet
• also, the accounting records of the company must be audited each year unless ASIC grants an exemption

Question 6

Outline the liability of a company limited by shares

Answer 6

• the liability of a shareholder for the debts of a company limited by shares is restricted to the amount the shareholders owes on these shares

Question 7

Outline the number of owners of a public and large proprietary company

Answer 7

Public:
- must have a minimum of 1 shareholder
- no upper limit on the number of shareholders

Large Proprietary:
- must have a minimum of 1 shareholder
- has a maximum of 50 non-employee shareholders

Question 8

Outline the number of directors of a public and large proprietary company

Answer 8

Public:
- must have a minimum of 3 directors

Large Proprietary:
- must have at least 1 director

Question 9

Outline the continuity of existence of a public and large proprietary company

Answer 9

• the ownership of a company will change from time to time as shareholders die or sell their shares but the company continues to exist until it is deregistered.

Question 10

Outline the type of legal entity of a public and large proprietary company

Answer 10

• a company is a separate legal entity
• can own property and can enter into contracts in its own name and can be sued in its own name.

Question 11

Outline the transfer of ownership of a public and large proprietary company

Answer 11

Public:
- a shareholder in a public company can sell their shares at any time, without restrictions

Large Proprietary:
- a shareholder in a proprietary company may be prevented by the constitution of the company from selling their shares without the approval of the other shareholders

Question 12

Outline the separation of ownership and management of a public and large proprietary company

Answer 12

Public:
- in a company, there is a separation of ownership and management
- the owners of a company are the shareholders
- the shareholders appoint directors to supervise the management of the company

Large Proprietary:
- in a proprietary company a person may be the only shareholder and the only director
- however, the role of a director is still separate from the role of a shareholder

Question 13

Outline the ability to raise capital of a public and large proprietary company

Answer 13

Public:
- companies can raise capital from the general public

Large Proprietary:
- large proprietary companies cannot raise capital from the general public

Question 14

Outline the similarities between large proprietary and public companies

Answer 14

• both forms of company ownership are separate legal entities
• shareholders in both forms have limited liability
• both forms must pay a flat rate of company tax as they are separate legal entities
• shareholders are entitled to profits in the form of dividends if one is declared

Question 15

Outline the differences between large proprietary and public companies

Answer 15

• a Ltd company is a public company whereas a Pty Ltd is a private company
• a Ltd company must have at least 3 directors, whereas a Pty Ltd company can operate with 1 director
• a Ltd company can have unlimited shareholder, whereas a Pty Ltd company has restrictions placed with a maximum of 50 non-employee shareholders
• public companies are subject to greater regulation than private companies and must report to ASIC and comply with their listing rules

Question 16

Outline the purpose of the Corporations Act 2001

Answer 16

• defines and gives a legal existence to a company
• sets out the duties of the directors of company
• sets out the external audit requirements of a public company
• sets out and defines the different types of companies that are permitted to exist under the Act, such as, public and proprietary companies
• requires that the financial report for a financial year of public and large proprietary companies must comply with the AASB accounting standards

Question 17

Outline the restrictions placed on companies as per the Corporations Act 2001

Answer 17

All companies must:
- notify ASIC of issue of shares and changes in registered office, directors and secretary
- minimum of 1 shareholder
- keep accurate financial reports
- follow process for calling, conducting and voting at meetings

In addition, proprietary companies:
- maximum of 50 shareholders
- minimum of 1 director who must be an Australian resident
- can raise funds by the issue of securities (capital) only from existing shareholders and employees (not public)
- must produce audited financial annual reports and a director’s report which must be submitted to ASIC
- sent annual report to all shareholders within 4 months of financial year end