COMPANY FORMATION Flashcards
CHECKLIST FOR REGISTERING A COMPANY
- 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
SHELF COMPANIES
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
REGISTERING A NEW COMPANY
› 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)
PRE REGISTRATION REQUIREMENTS
ss 112,113, 117, 147-152
› classification and type of company to be registered
› Choosing company name
› Application for registration/lodgment with ASIC
REGISTRATION BY ASIC
ss 118-119
› Registration is at ASIC’s discretion
› Certificate of Registration
› Corporate key
POST REGISTRATION OBLIGATIONS
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.
TYPES OF CLASSIFICATIONS OF COMPANIES
- 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.
proprietary companies
- 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
small v large proprietary companies
› Sml = less than 10 mill, less than 50 employees.
› Anything more = large. (different requirements for them, more reporting requirements).
Public Companies
- 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
Financial Reporting for public v proprietary companies
› 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)
Member/Shareholder Liability
Limited by share
Unlimited
Limited by Guarantee
No Liability
Limited by share
› Proprietary & public
› Most common
› Company engaged for profit making purposes.
› Liable for the value of their share.
› Must have LTD in their name.
Unlimited liability
› 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.
Limited by guarantee
› 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.
No liability
› 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)
changing the company type
- 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
pre-registration contracts
s 131
- Entering into a contract prior to registration.
- Likely will still be bound by the contract even is company not registered yet.
Choosing a company name
- 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
business name registration
- 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.
Preparing the Companys Constitution
- 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
choosing company officeholders
› 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
ASIC will if satisfied with application
- Register the company
- Allocate an ACN
- Issue a Certificate of Registration
what is a promoter
- 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.
Promoters relationship with the company and its members
- 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
