Module 2 - Companies: Formation and operations Flashcards
Name the 4 categories of companies?
- Limited companies
- Unlimited companies
- No-liability companies
- Special companies
What are the 3 types of limited companies?
Proprietary companies
Public companies
Companies limited by garuntee
Name the 3 types of special companies?
Investment companies
Bank companies
Life insurance companies
What is the main reason for setting up a company?
The main reason for setting up a company is because it permits owners to have limited liability to the extent of the amount invested
How many people are required to form a proprietary company?
as little as 1 but up to as many as 50 shareholders.
What tests must a proprietary company pass to be considered small?
- gross revenue less than $25m for the year
- gross assets valued less than $12.5m
- fewer than 50 employees
What is a major advantage of a public company?
its ability to raise capital from the public through shares, debentures and unsecured notes or loans
What is a prospectus?
It is a disclosure document for the issuing of shares or debentures for the public so investors can make informed decisions
Define unlimited companies?
members are liable for all debts of the company, they are not common in Australia
What industry does a no-liability company work in?
Mining
What are the advantages of the corporate entity?
limited liability broad source of capital continuity of existence ready transferability of shares use of professional management potential income tax savings
What are the disadvantages of a corporate entity?
greater government regulation
separation of ownership & management
The rules for governing the internal affairs of a company are called what?
Replaceable rules
What is the alternative to replaceable rules?
Constitution
What do replaceable rules deal with?
- appointment, powers and remuneration of directors
- directors’ meetings,
- members’ meetings,
- share transfers
- and inspection of the company’s books by members
What is the certificate of registration?
approval of the company’s application for registration and the issue of their ACN
What are the 3 major categories of equity in a company?
- share capital
- retained earnings
- other reserves
Define share capital?
Share capital is an equity account representing the amount of assets invested in the company by its shareholders, for public companies this may be preference or ordinary.
Define retained earnings?
a special type of reserve account that reflects the amount of profits (after tax) earned by the company and retained in the business
What are some common equity reserve accounts called?
- general reserve
- options reserve
- plant replacement reserve
- currency fluctuation reserve
Define dividends?
Dividends are simply a distribution of cash or other assets, or of a company’s own shares, to its shareholders
What is the most common type of dividend?
Cash dividend
Under what circumstances can dividends be paid?
When assets are greater than liabilities, it is fair to all shareholders and it will not impact the ability to pay creditors.
What are preference dividends?
Dividends pay to preference shareholders first, before ordinary shareholders as part of their ownership rights
What is a Share dividend?
it is the issue of new shares to existing shareholders in place of a cash dividend, this allows companies to retain cash for investment purposes
What are share splits?
unlike share dividends this is not a dividend or payment to shareholders but a strategy in which a company can reduce its share price by splitting each share into 2 or 4 and lowering the share price making it more attractive to more investors
