law +Introduction+Week+2

8/4/2019 law +Introduction+Week+2

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Corporate Governance

Week 2


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Learning Outcomes Overview of the Corporations Act

Characteristics of Companies

The Corporate Veil

Types of Companies

Incorporating a Company

Constitution and Replaceable Rules

Classes of Shares Annual Statement and Solvency Resolution

Research


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Overview of Corporations Law

The main statute regulating Companies in

Australia is the Corporations Act 2001


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History of the Corporations Act

The Corporations Act is the most recent in a

series of statutes governing companies.

It contains laws to govern all companies,

large and small.


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Company StatisticsSome statistics:

1. There are over I million companies registered in

Australia.

2. The vast majority of them are limited by shares.

3. Ninety Five percent of companies are classified

by the Tax Office as small businesses.4. There are approximately 1,300 companies listed

on the ASX.


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Purpose of Corporations LawCompany Law:

Provides for the formation & ultimatelytermination of companies.

Regulates the relationship betweenparticipants in companies e.g. therelationship between directors and

shareholders; and Facilitates dealings between companies and

outsiders.


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CHARACTERISTICS OF

COMPANIES Artificial legal person

Can sue and be sued in its own name

Perpetual succession

Can hold and dispose of property

A company may choose to have a

common seal Separate legal entity it exists

separately from its members


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CHARACTERISTICS OF

COMPANIES contd..

Contract with its controlling participants

Lee V Lee Air Farming Ltd


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TH

E CORP

ORATE VEIL

Corporate Veil - A company is a

separate legal entity and is separatefrom its participants.

Veil of incorporation

Lifting the veil of incorporationAt common law

Under the Corporations Law


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Lifting the Corporate Veil

contd. The Case Law (Courts) and Statute Law

(Corporations Law) will lift the veil if the

company has been used for :

Fraud

Avoid legal / tax obligations

Contributing to a breach of directors duty


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Lifting the Corporate Veil

contd. Examples of lifting the corporate veil under common law:

Green V Bestobell Industries Ltd (1982)- The gain of a familycompany registered for the purpose of aiding a companyofficer to breach their duty belonged to the company

Gilford Motor Co Ltd V Horne (1933) a breach of contract

by a person could not be hidden behind a companyregistered for that purpose.


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TYPES OF COMPANIES

Most common type companieslimited by shares

No Liability companies (miningcompanies only)

Public v Private companies

Holding and subsidiary companies related bodies corporate


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Types of Companies contd. Small and large proprietary companies Small

if Consolidated Gross operating revenue for the

financial year of the company is less than $10 m

Consolidated Gross assets at the end of financialyear is less than $ 5 m

Fewer than 50 employee

Large proprietary company is one which does notsatisfy atleast two of the above three criteria


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INCORPORATING A

COMPANY

Lodgement of application with

ASIC ACN (Australian Company

Number)

Post-incorporation requirements


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CONSTITUTION AND

REPLACEABLE RULES

For companies formed prior to 1

July 1998:Retain their Memorandum and

Articles;

Adopt the Replaceable Rules; or

Chose combination of both


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CONSTITUTION AND

REPLACEABLE RULES

For companies formed from 1

July 1998:Can adopt replaceable rules in

Corporations law;

Draft their own Constitution; or

Have combination of both


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LEGAL EFFECT OF

CONSTITUTION & RR Have the effect as a contract between:

The company and each member; S 140(1)(a) - Thecompany may enforce the statutory contract against

the individual members.Hickman V Kent or Romney Marsh Sheep BreedersAssociation

The company and each director and companysecretary: S 140(1)(b) can only be enforced if the

breach affects an officer in their capacity as director A member and each other member s140(1)(c)


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MEMBERSHIP AND SHARE

CAPITAL When does a person become a member of a

company?

Share certificates prima facie evidence of amembers title to shares

Register of members is a database ofinformation and will disclose valuableinformation to members, creditors and others.

Section 168 every company must keep aregister of members.

- Name, Address, Date, Share classes, Sharealloted, share certificate Numbers, amount paidup


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CLASSES OF SHARES

Ordinary shares

Preference shares

Cumulative preference

Non-cumulative preferenceParticipating

Non-participating


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OTH

ER TYP

ES OF SH

ARES

Employee shares Deferred shares


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ANNUAL STATEMENTS

Annual Returns abolished on 1July 2003

Companies sent an Annual

Statement on review date


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ANNUAL STATEMENTS Information contained:

Registered office

Principal place of business

Ultimate holding company

Office holdersCompany share structure

Members


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ANNUAL STATEMENTS If information is incorrect:

Lodge changes within 28 days orlate review fee charged (Form 484)

If information is correct:

No documents need to be lodged

The annual review fee must be paidwithin 2 months of the annual reviewdate


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SOLVENCY RESOLUTION

Company directors must pass a

solvency resolution within 2months of their review date unless

the company lodged its financial

statements and Directors Report inthe 12 months before the review

date.


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TYP

ES

Positive solvency resolution:

Passed when the directors havereason to believe that the

company will be able to pay its debts

as and when they become due and

payable


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TYP

ES

Negative solvency resolution:

Passed when directors have reasonto believe that the company will not

be able to pay its debts as and when

they become due and payable


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WH

AT TO DO

Negative solvency resolution:

Lodge Form 485 within 7 daysafter the resolution is passed

Positive solvency resolution:

No requirement to notify ASIC,

only requirement is to pay review

fee


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Thank You

Documents

law +Introduction+Week+2