FOUNDATIONS OF CORPORATIONS LAW

Question 1

What is a Corporation

Answer 1

s 57A.
› a company; and
 Popular form of business structure.
 Classifies them.
› any body corporate; and
 like a company on a smaller scale?
› an unincorporated body.
 Usually not-for-profit.
 Has a separate entity

Question 2

Corporations Act 2001 (Cth)

Answer 2

The Corporations Act 2001 (Cth) is legislation that regulates companies in Australia
› The Act contains provisions regulating company matters, but also regulates financial services and markets and managed investment schemes
› The Australian Securities and Investments Commission (ASIC) has sole responsibility for administration and enforcement of the Corporations Act 2001 (Cth) nationally

Question 3

what is a company?

Answer 3

› Refer to sections 9, 119 and 124, and Part 1.5 of the Small business guide
› At least one member s 114 and one Director s 201(a)

Question 4

when does a company become incorporated?

Answer 4

(s 117) - when it is registered with ASIC
when the appropriate paperwork is filled out and filed with ASIC, and payment is made ASIC then registers the company to the company Register and issues a Certificate of Registration

Question 5

Incorporation/Corporate Personality

Answer 5

› The principle behind company law is that a company is a distinct legal entity
› It has an existence separate from the holders of its shares who are its members
› The acts of a company are its acts, not the acts of its members.

Question 6

Functions of Companies (why people make a company)

Answer 6

› Limiting (and separating) liability
› Raising funds
› Alternate to family trust
› A structure for fund management (collective investment scheme)

Question 7

two corporate law theories

Answer 7

Institutionalist/managerialist theory
Contractualist theory

Question 8

Institutionalists/managerialist theory

Answer 8

 Emphasizes the importance of corporate management and the power it wields;
 Question is whether management holds this power legitimately; critics argue managers often exercise power without accountability to shareholders;
 Accomplishing accountability through mandatory duties upon directors, disclosure obligations and enforcement of those duties and obligations

Question 9

contractual theory

Answer 9

 Emphasizes the importance of market forces in aligning the interests of managers and shareholders;
 Competitive markets are more important than mandatory legal rules to force managers to maximise shareholder wealth; market forces will require managers to act in the best interests of shareholders

Question 10

evolution of Australian Company Law

Answer 10

• Before Federation in 1901 each Australian colony had company legislation based on the Companies Act 1862 (UK); after federation, states continued to be responsible for company legislation - Made it confusing. Registered in one state, not recognised as a corporation in another.
• The 1961-62 cooperative regime
• The 1981 cooperative scheme
• The Commonwealth’s unilateral bid for sole control
• NSW v Commonwealth (1990) 169 CLR 482
• The 1991 cooperative scheme
• The Corporations Act 2001 (Cth)

Question 11

deciding on a business structure

Answer 11

here are a number of different legal structures under which a business may be owned and managed
- Different business structures place different degrees of liability on their owners and operators and must be considered when choosing the appropriate legal form in which to run a business
- In determining which business structure to use a number of matters need to be considered:
› size and type of business, start-up costs, nature of business (risk), management requirements, tax implications, etc
- An enterprise might evolve into different structures as it grows, as its risk increases or if there is a need for further capital; consider carefully the business structure because each structure has different implications and legal consequences

Question 12

4 business structures

Answer 12

Sole trader
Partnership
Company
trust

Question 13

SOLE TRADER

Answer 13

• Sole trader, sometimes referred to as sole proprietor, is the simplest and most basic business structure
• A sole trader is an individual natural person who owns a business enterprise as principal; that individual is solely responsible for the provision of capital and all risks involved and has total control of the business
• As a mater of law, there is no separation between the sole trader’s personal and business affairs
• Typically, sole traders are small businesses such as a local shop, retailer, petrol outlet, or single person businesses used in trades, plumbing, or in professional practice such as an accountant or lawyer.

Question 14

BENEFITS OF SOLE TRADER

Answer 14

› Easy to set up.
› Not obliged to disclose.

Question 15

partnerships

Answer 15

• A ‘partnership’ is ‘the relation which subsists between persons carrying on a business in common with a view of profit’
  › 3 elements; carrying on a business; in common; view of profit.
• Unlike a company, a partnership is not a separate legal entity; partners have unlimited liability for the debts of the partnership
  › Responsible for each others debts.
• Governed by the Partnership Act 1895 (WA); Also see Corps Act: s 115 and Corps Regs 2001: 2A.1.01
• Partnerships are between 2 and 20 people. Once a partnership is more than 20 people, it normally must incorporate: Corporations Act 2001 (Cth) s 115.
  › Regulator views it too big. Has to disclose information to public.
• Partnership examples: accounting or law partnerships, trades people combining different skills (painter and bricklayer, etc)

Question 16

Company

Answer 16

• A company business structure is a separate legal entity, unlike a sole trader or partnership structure; this means that the company has the same rights as a natural person and can incur debt, sue and be sued, enter into contracts, etc
• A company must be registered; its very existence derives from registration
• A company can be broadly classified as either:
  › a proprietary company; or
  › A public company
• Companies can be expensive and complicated to set up and generally suit people who expect their business income to be highly variable and want to use losses to offset future profits
• The Corporations Act provides for the registration of proprietary and public companies: four types of companies that can be registered (classified according to liability of all its members)

Question 17

proprietary companies

Answer 17

s 113.
› May be formed by one person (one individual may be the only shareholder and the only director)
› its membership is limited to 50 persons
› it must have share capital; and
› it includes the word ‘proprietary’, or an abbreviation thereof (Pty Ltd), in the company name
› shares not publicly traded on the open market.

Question 18

Public companies

Answer 18

› Requires a minimum of one member and three directors
› 2 types:
 Listed on stock exchange.
 unlisted
› it may have unlimited members
› 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

Question 19

Trusts

Answer 19

• In a trust structure, a trustee holds your business for the benefit of others (beneficiaries)
• A trust is an equitable obligation binding a person (the trustee) to deal with property over which they have control (trust property) for the benefit of persons (beneficiaries)
• A trustee can be a person or a company and is responsible for everything in the trust, including income and losses
• A trust, unlike a company, is not on its creation a new separate legal entity; a trust holds property for the beneficiaries of the trust
• Trust structures can be expensive and complicated to set up and are generally used to protect the business assets for beneficiaries; best to seek professional licensed trust advice