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Corporate Law > Lecture 2-Business planning and setting up companies > Flashcards

Lecture 2-Business planning and setting up companies Flashcards

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1
Q

When you want to do business you have a choice of what forms of organisations?

A
  • decide whether to do incorporated or unincorporated body= only incorporated ones have separate legal personality
  • sole trader
  • general or limited partnership
  • trusts and managed investment schemes
  • syndicates and joint ventures
  • clubs
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2
Q

What is a sole trader?

A

-set up a little business, you advertise your product and sell, you pay tax but you don’t have to have a company to run a business, you get a business number a NBN

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3
Q

What is a general and limited partnership?

A
  • general partnership= two or more people are carrying a bussines for profit, you can accidentaly find yourself in a partnership, liable for all debt,even those of anotehr partner personal assets, even tort debt etc, there is no separate entity so you are liable yourself
  • limited partnership= it is possible when some partners only put in capital (sort of like investors) these then have limited liability but not all partners can be limited partners, the limited ones cannot take part in decision making= not that common in australia
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4
Q

What is a trust?

A

-trust= someone wanting to protect the beneficiary, like inheritance= then another person holds it to the benefit of the beneficiary,= trusts used to be very popular (as profits were taxed twice otherwise but today not anymore as new laws

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5
Q

What are syndicates or joint ventures?

A

-syndicate and joint ventures= people or companies coming together for one venture like more companies going to build railway, defined contractual obligation

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6
Q

How can companies be incorporated?

A
  • either by special act of parliament (usually very big companies or universities= unimelb e.g.)
  • or the Corporations Act (there are other acts as well but we don’t look at those)
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7
Q

What things should you consider when deciding on whether to form a company or not?

A
  • PROFIT/NON-PROFIT=sole trader, company, partnership
  • cannot make profit by limited by guarantee
  • you can have a company for non-profit business (charities, or clubs…)
  • LIMITED/UNLIMITED LIABLITY=it is the shareholders (investors) not the company so can’t get into their pockets if you are unlimited liability
  • LIMITS ON SIZE= given by what type of company you choose, not really limited
  • ABILITY TO RAISE CAPITAL=only companies can issue share and raise equity capital
  • FORMALITIES AND EXPENSE=have to have annual fee and audit (so for really small business not that a good idea)
  • AUDIT AND REPORTING REQUIREMENTS=public companies have to be audited annualy, the bigger the company the more you have to reveal to the public
  • TAX TREATMENT=now only one taxation on the profits in all forms so
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8
Q

What are the advantages of forming a company?

A
  • can have more than 20 members (outsize partnerships prohibited by s 115)
  • may have limited liability
  • may be easier to raise capital
  • different tax treatment
  • company law as standard form contract= you know where you stand
  • flexibility=can go from small business, to a huge international corporation, as it grows the obligations change
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9
Q

What are the exceptions to the limit of number of members in a partnership?

A
  • business of providing advice and services cant be a company, = lawyers, accountants
  • these professions have lmits= so you can sue each partner individually etc. so the yare not in a company, can’t have a company with limited liability
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10
Q

Does Australia have minimal capitalization?

A
  • no

- can have a company with one member and one dollar in assets

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11
Q

What are the disadvantages of forming a company?

A

-usually greater expense in formation and compliance
-may have to reveal information to the public
(do have to do annual compliance report, the bigger you get the more you have to reveal to the public)

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12
Q

What are corporations formed under the Act called?

A

companies

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13
Q

How are companies classified?

A

-by reference to basis and extent of the
members’ liability
- as public or proprietary (proprietory= private = far more closed in circumstance of a company, more suited to a small business, more flexibility, less ability to deal in big)

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14
Q

Do all provisions of the Act apply to all companies?

A
  • no

- Some provisions of the Corporations Act apply only to certain types of companies

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15
Q

What is a company limited by shares?

A

-raditional businees, has share capital, shareholders, debt capital, most common

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16
Q

What is a company limited by guarantee?

A
  • club/professional association where profit is not your goal, you can make a profit but it can never be distributed to the members of the company,
  • every member taht joins, sign a guarantee that if the company fails they will pay a nominal sum (10 dollars) and that is all they are liable to, great for place where people come and go, and the company can make contracts and own
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17
Q

What is an unlimited company?

A

-partnership otherwise, but their rules won’t allow them to run through limited company, so the members are liable for debt, but this way it is better than sole trader or partnership as it has legal entity so can contarct in its name etc.

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18
Q

What is a no liability company?

A

-mining companies, like games of poker, put dollar in (10 dollar share) they dig, then call another dollar, you can pay or not pay, you are not liable for any more that you’ve paid = only mining companies are allowed incorporated this way. not every mining company is like tis. only the startups

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19
Q

How are the different companies classified? PIC1

A

-

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20
Q

What are the rules for a proprietary company?

A

s113-no more than 50 members
-no fundraising activity requiring a disclosure
document under Chapter 6D(raise funds via a disclosure = can’t send out a prospectus and ask whoeevre want can join, can’t have strangers being members)
-Must have one or more directors – s 201A
-may be a company limited by shares or an unlimited company with share capital – s 112

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21
Q

What does s113 do?

A

-proprietary companies cannot have more than 50 members, then become public companies

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22
Q

What does s201A do?

A

-proprietary companies have to have one director or more

23
Q

What are the rules for public companies?

A
  • everything other than proprietary
    companies: s 112
  • Must have three or more directors: s 201A (2)
  • Sometimes have different rules eg dividends – s 254W; disclosure
  • Aim is greater shareholder protection
24
Q

What does s 201 A (2) do?

A

-public companies have to have three or more directors

25
Q

What does section 112 do?

A

-classifies public companies as everything but proprietary companies

26
Q

What is a corporate group?

A
  • Often different aspects of the business are owned or carried out by different companies in a group
  • you’ll have companies owning shares in other companies
27
Q

What is a holding company and its subsidiary?

related bodies corporate

A
  • s46
  • holding company= controls the board of the subsidiary, controls more than half of the votes(=then they can appoint the board)
  • controls the appointment of the board via the shareholding!
  • law treats them as separate legal entities with a few exceptions
28
Q

What are controlled entities?

A
  • s50AA- you can be a controlling company even if you own less then 50% of shares, in practical influence terms.
  • law treats them as separate legal entities with a few exceptions
29
Q

What do you have to do when you want to register a company?

A
  • go through registration by ASIC
  • procedure in s117; ASIC form 201
  • you have to choose a name that cannot be the same as one already in use (s 148)
  • public companies= LTD
  • proprietary companies= PTY LTD
  • no liability= NL
30
Q

What does s 117 do?

A

-procedure of company registration

31
Q

What does s148 do?

A

-governs the naming of companies

32
Q

How are the internal workings of companies regulated?

A
  • Every company can decide how to manage their internal workings, with some limits
  • everyone is goevrned the same way by outside rules but different internal rules
  • These rules are called their internal governance rules
  • Companies can write their own rules or use a version supplied by the Act, or some of both (-when you start a business you might not know what rules to impose and the act provides suggestions to what you can include.) RRs
33
Q

Where can we find the internal rules of companies?

A

-in the company’s own institution or the replaceable rules or combination of both

(-section 134 of the Corporations Act: A company’s internal management may be governed by provisions of this Act that apply to the company as replaceable rules, by a constitution, or by a combination of both.)

-when found in the Act= the replacable rules
(as they are not set, you can include them if you wish, or you don’t have to)
-treated the same way as if you’ve written them yourself

34
Q

What are the replaceable rules? (RRs)

A
  • introduced in 1998
  • companies may elect to rely on some or all of the replaceable rules contained in the Corp Act
  • RRs apply unless they are displaced or modified by a company’s constitution s135

-they apply as the law of your individual company, if your cosntitution is silent on a point then the RRs apply…
for exams= companies= will have RRs and then she will say if any are displaced

35
Q

Where are the RRs listed?

A

-s 141 and scattered through the ACT
-there are rules covering =
-! officers and employees
! inspection of books
! meetings
! shares
! share transfers
-public companies cannot have a rule limiting the transfer of shares= whereas propriatory can say only to exsitint shareholders

36
Q

Do all RRs apply to all companies?

A
  • no some only apply to public proprietary and are non-replaceable for public companies
37
Q

What is the RR s 249X?

A
  • proxies) - mandatory for public companies; replaceable for Pty Ltds
  • so you send someone instead of yourself, they vote instead of you. this rule is mandatory for public and replaceable for pty ltd.
38
Q

What is the RR s 203C?

A
  • (removal of directors by members) is an RR for proprietary companies only
  • only applies to pty ltd, company by resolution= talking about a vote, so the shareholders voting togetether, can replace director by a 50% vote, if exactly 50%= then the chairman of the meeting has a casting vote and if he says yes it is yes if no it’s a no
39
Q

What is the RR s 254D?

A
  • (pre-emption) is an RR for proprietary companies only
  • -about power so your majority isn’t diluted,you have to present new shares in that class to sharehodlers of that class who you already have to keep the power the same
40
Q

What is the rule for public companies with getting rid of directors?

A

-=== the rule for public companies is not replacable= they can replace the director the same way but cannot change the rule
-have to be removed by shareholders in general meeting and a vote
= same as proprietary

41
Q

What is the constitution of a company?

A
  • Company can write some or all of its own rules – called its constitution: s 136
  • Eg to provide for something not covered by RRs eg partly paid shares
  • Or to override something in the RRs – s 135(2)
42
Q

What does s 136 do?

A

-Company can write some or all of its own rules – called its constitution

43
Q

What does s135(2) do?

A

-rules how to to override something in the RRs

44
Q

What were the rules prior to the release of RRs in 1998?

A
  • Companies formed prior to 1 July 1998 may still have their old memorandum and articles of association (which were required under the old law)
  • Many companies used “Table A”
  • Table A is limited by shares rules
  • Table B is mining companies (no liability)
  • if they still use this that is their constitution
45
Q

When do you adopt a constitution?

A
  • Can be done when the company is registered, or later: s 136(1)
46
Q

What is special resolution?

A
  • need a vote of the shareholders 75% to change something in a constitution or decide something
  • s 9: 75% vote of those present who are entitled to vote
47
Q

What is an ordinary resolution (also referred to as just resolution)?

A

-need a vote of shareholders, 50%

48
Q

How can you change or amend or repeal a constitution after registration?

A

-requires a special resolution of members: s136(2)

49
Q

What does entrenching a rule mean?

A
  • this is how you can protect yourself in the company
  • how to protect yourself if you are forming a company
  • 136(3)- company can provide that a special resolution won’t have any effect unless some other provision is met
  • fred is a a director for life
  • can be altered only iwth fred’s permission= so you do it when you still control 75% and then you are safe
  • cou can’t vote on the enternching clause, it has to be met to repeal the condition
  • This entrenching clause can only be changed if it is itself complied with
50
Q

What does s136(3) do?

A
  • Constitution can contain extra requirements for changing its rules
  • entrenching rules!
51
Q

What is the legal effect of the internal governance rules?

A
  • section 140 deals with this:
  • A company’s constitution (if any) and the RRs that apply to it have effect as a contract between:
  1. the company and each member
  2. the company and each director and secretary
  3. a member and each other member

-RRs and hand-written constitution have the effetc as a contract between:— breach of the constitution is not a breach of the act, it is a breach of the contract

52
Q

What are the facts of Eley v Positive Govt Security Life?

A
  • -soicitor, dismissed as solicitor,
  • the constitution said he is a solicitir so breach of contract: but NO! as the contract is only between company and member, company and director and secretary NOT a solicitor!!!
53
Q

What happens if the RRs or internal governance rules are breached?

A
  • Breach of contract – so use contract law rules for interpretation and remedies
  • Oppression – s 232 to s 234 – looked at in Lecture 7
  • Procedural irregularity – Lecture 4
  • NOT a breach of the Act – s 135(3)
54
Q

What is the special exception with single director/single shareholder companies?

A
  • Special type of company in which the only member is also the only director
  • Only allowed for proprietary companies (as public companies must have at least 3 directors)
  • RRs do not apply – s 135(1)
  • Some special rules apply – s 198E, 201F and 202C

Corporate Law (5 decks)

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