Companies

Question 1

Company

Answer 1

An organisation established under the Corporations Act 2001 as a separate legal entity.
Can:
- Enter into legal agreements in own name
- Can own property
- Can sue/be sued in own name

Question 2

Step 1 of company formation

Answer 2

Must fill out form 201 available from ASIC.
Must contain:
- Company name, type of company, whether will be governed by replaceable rules or the Company Constitution

Question 3

Corporations Act 2001

Answer 3

1. Defines and gives legal existence to a company.
2. Sets out duties of company directors.
3. Sets out external audit requirements of a public company.
4. Sets out and defines different company types permitted to exist under the act.
5. Requires that the financial report for a financial year of public and large proprietary companies must comply with AASB accounting standards.

Question 4

Company directors

Answer 4

People elected by shareholders to act on their behalf who appoint managers.
Corporations Act provides that directors manage the company.
Company constitution/replaceable rules set out power of directors, ie, right to issue shares, borrow money, appoint/dismiss senior managers.

Question 5

Duties of directors

Answer 5

1. Must carry out their duties with reasonable care and diligence.
2. Must act in the best interest of the company.
3. Must not make improper use of their position/information to gain an advantage for themselves or another.
4. Must ensure the company doesn’t trade when insolvent

Question 6

Company limited by shares

Answer 6

Liability of shareholders for company debts is limited to the amount owing on their shares. Two types: proprietary and public.

Question 7

Proprietary Company

Answer 7

Cannot raise money from the public.
At least 1 shareholder, max of 50 non-employee shareholder.
Must have at least 1 director.

Question 8

Large proprietary company

Answer 8

Needs to satisfy any two of the three conditions:
1. Total revenue for a financial year is $50mil or more
2. The total gross assets on the last day of a financial year is $25mil or more
3. Company and any other entities that it controls at the end of the year has 100 employees or more.
Must prepare a financial report containing:
- statement of comprehensive income, cash flow statement, balance sheet.

Question 9

Public company

Answer 9

Any company that is not a proprietary company.
Must have at least 1 shareholder.
No limit on shareholders.
Must have at least 3 directors.

Question 10

Prospectus

Answer 10

Issued by a public company that invites public to purchase shares/debentures.
Includes:
1. Key financial information about the company.
2. Number of shares that are being offered for sale and the offer price.
3. Key facts about company directors.
4. An application form that investors wishing to apply for the shares must complete and return to the company.

Question 11

Advantages of companies limited by shares

Answer 11

1. Public companies listed on the ASX can raise large amounts of capital by issuing shares
2. Public companies can borrow large amounts of money from the public.
3. Have limited liability
4. Has a continuous existence.
5. Someone without business skills can own part of a company listed on the ASX.

Question 12

Replaceable Rules

Answer 12

Include:
1. Appointment and removal of directors
2. How a shareholder can obtain the right to inspect accounting records.
3. How voting is to be carried out at shareholder meetings
4. Who has the authority to approve dividend payments

Question 13

Company Constitution

Answer 13

Set of rules for the management of a company. Can be used to modify or completely replace the replaceable rules.
Is a contract between the company, shareholders and directors.

Question 14

What are the reporting requirements for a public company?

Answer 14

The Corporations Act requires public companies to produce, within a set
period of the end of each year, audited financial statements in a specified form. These statements must be sent to ASIC and also to the company’s shareholders and must be accompanied by a report from the external auditor appointed by the shareholders. Audited half-yearly reports must also be sent to ASIC, though they need not be sent to shareholders.
The reports must comply with Australian Accounting Standards.
As the company is listed on the ASX, it must also send them to the ASX, which will then publish them on the market, financial reports in a specified form, which may be more demanding than the requirements of the Act. For instance, the ASX requires the immediate reporting of any information which is likely to affect the price of the company’s securities.