Companies Flashcards
company
a legal entity set up as a separate entity from its owners
- can enter into legal agreements in its own name, sue and be sued in its own name, own property
- all aspects of company formation and certain aspects of company operations are controlled by corporations act
share capital
total equity purchased by shareholders represented by shares issued to them
- equity of a company is divided into parts known as shares
- each share is given a small money value
- people purchase these shares and become owners of the company
- owners of a company are known as shareholders or members
liability of owner
liability of a shareholder is limited to the amount the shareholder owes on the shares
proprietary company
- cannot raise money from the public
- must have at least 1 shareholder and maximum 50 non employee shareholders
- must have at least 1 director and secretary is optional
- must have proprietary or pty in its name
- do not have to hold AGM if shareholders agree
- company’s constitution may contain a clause that restricts right of shareholders to transfer their shares to a new owner
public company
- can raise money from the public in the form of shares or securities
- must have at least 1 shareholder with no upper limit on number of shareholders
- must have at least 3 directors and 1 secretary
- must have limited or ltd in its name
- shareholders can transfer their shares to a new owner without restriction
similarities between public and large proprietary companies
- owners have limited liability
- company has continuous existence where the death of a shareholder does not end the company as it is a separate legal entity
- however, the ownership of a company may change from time to time but continues to exist until it is deregistered
- company is a separate legal entity and is taxed as a separate legal entity
- directors can act on behalf of company and have obligations to do what is in the best interest of the company
AGM
meeting of the shareholders and directors
- shareholders are given opportunity to question the directors about the company’s performance over previous 12 months
- shareholders elect directors, appoint or reappoint external auditors and approve final dividend recommended by directors
large proprietary company satisfies 2/3 of these
- 12.5 million or more total gross assets
- 25 million or more total revenue
- 50 or more employees
large proprietary company
must lodge financial statements with ASIC each year and audit each year unless ASIC grants exemption
- reports include SOCI, SOFP and balance sheet
corporations act
regulates company operations in Australia
impact of the act on company formation, operations and governance
- powers and duties of directors
- written constitution
- replaceable rules
- prospectus
- rights of shareholders
duties of directors
- care and diligence
- good faith
- duty to disclose
- proper use of information and power
- no trading during insolvency
- ensuring relevant information is lodged with ASIC
care and diligence
directors should exercise degree of care and diligence that a reasonable person in a similar position would exercise
- business judgement rule
- directors who make business judgements with care and diligence are ones who make judgements in good faith, has no material personal interest in the outcome and believes rationally that decisions are in the best interest of the company
good faith
directors should act in good faith in the best interest of the company, avoid conflicts and manage and disclose any conflicts that may arise
duty to disclose
directors must disclose strong interests or potential conflicts that might affect his impartiality in decisions and the extent of his interest and how it affects the company
- where an interest exists, the director should not be involved in decisions or vote on it
proper use of information and power
directors should not make improper use of information and their position as director
no trading during insolvency
directors should ensure that company does not trade while insolvent and should report to liquidator if company is being wound up
ensuring relevant information is lodged with ASIC
directors are required to ensure that company complies with obligations on keeping financial records and preparation and audit of financial reports showing performance and financial position are true and fair
powers of directors
- having access to all information
- exercising all powers set out in constitution except where constitution requires power to be exerted through AGM
- manage the business
- execute negotiable instruments
- delegate their powers
formation of company limited by shares
- complete and submit form 201 and pay required fee to ASIC
- once ASIC is satisfied that all requisite requirements are fulfilled, a certificate of incorporation will be issued and company will become a separate legal entity
information to be submitted to form a company
- name of company
- registered office
- place of business
- name and consent of initial shareholders, directors and secretary
- rules selected to govern business
a company will be manages internally under a set of rules
- replaceable rules
- constitution
- combination of both
replaceable rules
- set of rules from corporations act
- automatically applies to proprietary companies unless replaced with replaceable rules and newly formed companies unless director and shareholder are the same person
- saves company from making constitution updates every time laws relating to company operations changes
- do not need to be registered with ASIC
constitution
- set of rules developed by company and is a contract between the company, shareholders and directors
- can be used to manage the company by developing their own set of rules or amending any replaceable rules
- might have to make updates every time laws relating to company operations changes
- public companies must register with ASIC
- proprietary companies need not register with ASIC but must be made available if requested
