COMPANY FORMATION

Question 1

CHECKLIST FOR REGISTERING A COMPANY

Answer 1

• Type of company: s 112
• Company governance – Replaceable Rules or Company Constitution, or both: s 135
• Choose a company name: s 148
• Where the company will be registered: ss 119A(1)-(3)
  › Registered offices: s 142, also see s 109X(1)(a)
  › Place of business: ss 117(j) and 146
• Choose company officeholders
• Decide on share structure
• Choose the shareholders

Question 2

SHELF COMPANIES

Answer 2

 a company that has been registered by ASIC but has never traded
 solicitors, accountants and specialist formation companies keep a stock of shelf companies
 commonly used in the past to speed up the process of acquiring a company rather than registering a new one
 key benefit of acquiring a shelf company was saving time

Question 3

REGISTERING A NEW COMPANY

Answer 3

› New company registration
 registration process very efficient today
 application lodged by a person who will be a member of the proposed company, called “corporator(s)”
 proposed company can be formed for any lawful purpose
 $538 (current) company registration application fee (proprietary/public with share capital)

Question 4

PRE REGISTRATION REQUIREMENTS

Answer 4

ss 112,113, 117, 147-152
› classification and type of company to be registered
› Choosing company name
› Application for registration/lodgment with ASIC

Question 5

REGISTRATION BY ASIC

Answer 5

ss 118-119
› Registration is at ASIC’s discretion
› Certificate of Registration
› Corporate key

Question 6

POST REGISTRATION OBLIGATIONS

Answer 6

ss 9, 118,120-123, 168-178, 251A, 251B, 286(1), 327A, 325
› Appointment of founding members and company officers
› Other administration: expenses in setting up company, company office, company name, minutes of meetings, financial records and auditor, bank accounts, etc.

Question 7

TYPES OF CLASSIFICATIONS OF COMPANIES

Answer 7

• public v proprietary
• liability of members
• Relationship to other types of companies (holding/parent and subsidiary) (ss 9, 46, 50)
• Status as prop or public, Status as a parent or subsidiary company, Status as a foreign domestic company etc.

Question 8

proprietary companies

Answer 8

• May be formed by one person (one individual may be the only shareholder and the only director): ss 114, 201A(1)
• its membership is limited to 50 persons: s 113
• it must have share capital; shares only for existing shareholders, no shares for public subscription (s 113(3))
• it includes the word ‘proprietary’, or an abbreviation thereof (Pty Ltd, Pty), in the company name
• No AGM required

Question 9

small v large proprietary companies

Answer 9

› Sml = less than 10 mill, less than 50 employees.
› Anything more = large. (different requirements for them, more reporting requirements).

Question 10

Public Companies

Answer 10

• Requires a minimum of one member and three directors: ss 114, 201A(2)
• it may have unlimited members; listing on ASX
• it may invite the public to subscribe for any shares in, or debentures of, the company and it may be required to prepare disclosure documents when it issues shares
• if it is a limited liability company it includes the word ‘limited’ (or Ltd) after the name of the company
• Annual General Meeting (AGM) required

Question 11

Financial Reporting for public v proprietary companies

Answer 11

› Small Proprietary
 Generally, no fin reporting reqs – some exclusions (ss 293-294B)
› Large proprietary & Public
 Annual financial report (ss 292, 295)
 Directors’ report (ss 298, 299, 299A)
 Auditor’s report (s 301)

Question 12

Member/Shareholder Liability

Answer 12

Limited by share
Unlimited
Limited by Guarantee
No Liability

Question 13

Limited by share

Answer 13

› Proprietary & public
› Most common
› Company engaged for profit making purposes.
› Liable for the value of their share.
› Must have LTD in their name.

Question 14

Unlimited liability

Answer 14

› Proprietary & public
› members no limit on liability (ss 9 & 519)
› members are liable in winding up without limit.
› Rare these days.
› Usually seen in something like a mutual fund.
 Holds assets and divides profit.

Question 15

Limited by guarantee

Answer 15

› Public only
› No shares or dividends (s 124(1), 254SA)
› Liability limited by agreement – ss 9, 517
› Limited to the respective amounts each member agrees to pay in the event the company is wound up.
› Usually charitable type companies, or created for some type of social purposes.

Question 16

No liability

Answer 16

› Public only
› Mining (112(2))
 ONLY MININING.
 Go away from mining industry cannot longer be registered as not liablity.
 Mining is defined.
› No liability even for unpaid shares (ss 9, 254M, 514)
 Members never be liable to pay calls on their shares.
 Placing not liability attracts capital (high risk projects, need people to invest).
› Forfeiture (s 254Q)

Question 17

changing the company type

Answer 17

• A company can change its liability status and therefore its classification by passing a special resolution and complying with procedures under ss 162-166 of the Corporations Act
• However, there are some restrictions, for example:
  › A proprietary company cannot change from a limited liability company to a no liability company: s 162(1)
• Also, ASIC may demand a company change its status to that of a public company if its membership exceeds prescribed limits: s 165

Question 18

pre-registration contracts

Answer 18

s 131
- Entering into a contract prior to registration.
- Likely will still be bound by the contract even is company not registered yet.

Question 19

Choosing a company name

Answer 19

• A company can choose its own name or be known by its Australian Company Number (ACN)
• Where a company carries on a business under a business name that is not the same of the company, the company must register the business under the Business Name Registration Act 2011 (Cth)
  › This Act establishes a national system for the registration of business names that is controlled by ASIC

Question 20

business name registration

Answer 20

• The Business Name Registration Act 2011 (Cth) requires that any person, not just companies, who carries on business under a name other than their own to register the business name
  › Registered businesses receive an Australian Business Number (ABN)
  › There are rules governing the name a company can use: s 147(1)
  › The name cannot be identical to a name that is reserved or registered already
  › The public must be able to tell if the company is a public or proprietary company, and whether or not the shareholders have limited or unlimited liability
   Ex. Proprietary limited companies must have the words ‘proprietary’ and ‘limited’ or abbreviations thereof at the end of their name (Pty Ltd)
   Ex. Proprietary unlimited companies can only have the word ‘proprietary’ at the end of the name.
  › Certain rules on
   Can’t be offensive, suggest legal activity, certain symbols not allowed, certain words need approval from minister.

Question 21

Preparing the Companys Constitution

Answer 21

• Before registering you will need to decide how the company will be governed
• A company can be governed by:
  › Replaceable Rules (RR) under the Corporations Act;
  › its own constitution; or
  › a combination of both.
• The replaceable rules and the company constitution have the effect of a contract between the company and each member; the company and each director and each company secretary; and a member and each other member of the company

Question 22

choosing company officeholders

Answer 22

› Directors and secretaries are known as the officeholders of a company
› For each officeholder, you will need to provide their names, date and place of birth and address
› Company directors are required by law to apply for a director identification number (director ID)
› Obtain written consent from each person appointed as a company officeholder

Question 23

ASIC will if satisfied with application

Answer 23

• Register the company
• Allocate an ACN
• Issue a Certificate of Registration

Question 24

what is a promoter

Answer 24

• A promoter is a person(s) who organize and supervise the formation of a company
• In Whaley Bridge Calico Printing Co v Green & Smith (1879) 5 QBD 109 Bowen J at 111: “The term promoter is a term not of law, but of business, usefully summing up in a single word a number of business operations familiar to the commercial world by which a company is generally brought into existence.”
• When a new company is formed the persons associated with its formation may become subject to special duties as promoters
• It’s a question of fact as to whether someone is exerting themselves as a promoter or is in fact just a professional participant.

Question 25

Promoters relationship with the company and its members

Answer 25

• Promoters stand in a fiduciary relationship with the company being formed and its members
  › Promoters must not make a secret profit, and must act honestly, diligently and carefully
• They must disclose all profits made from prior transactions or by transferring any property to the new company; failure may result in a requirement to hand back profits not declared: Gluckstein v Barnes [1900] AC 240
• The disclosure must include all profits and be made to all investors or appropriate representatives who can make an informed assessment of the value of the company: Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218