At the Outset. Aims of the unit. PRBL004 Lecture 1 Introduction to Corporations Law

Transcription

1 PRBL004 Lecture 1 Introduction to Corporations Law Jeswynn Yogaratnam Room: ; Yellow 1 (3rd flr) Telephone: (08) jeswynn.yogaratnam@cdu.edu.au 1 At the Outset Passing rates Regular attendance Books Exam focused Communication is KEY! Teamwork (peer assessed) 2 Aims of the unit To provide brief overview of different business structures and appreciate the need for different structures To provide a good understanding of company law in relation to registered companies [with emphasis on the Corporations Act 2001 (Cth)] To provide an understanding of the legal rights and duties of stakeholders: members, creditors, directors and other company officers To make you more effective consultants in the business world 3 1

2 Assessment Assignment 1 Mini research paper and presentation on a Corporate Debacle (35%) Assignment 2 Case study and problem solving (15%) Seminar - 10% Exam Take home exam (40%) 4 Lecture 1 Brief history What is corporations law and where do you find it? Types of business structures Basic characteristics of a company Comparison with partnerships and other structures Registering/incorporating a company ASIC and its role 5 What is corporate law? Generally, it is the regulation of companies from creation to dissolution and their dealings internally and externally Emphasis of this course is the registered company Mostly regulated by the Corporations Act 2001 (Cth) ( CA ) Also: Australian Securities and Investments Commission Act 2001 (Cth) ( ASIC Act ) Common law (case law) rules Judicial interpretation of CA (=common law) 6 2

3 What is a company? Companies are abstract, artificial entities recognised by the law as legal persons with rights and liabilities separate from their members or shareholders. Lipton & Herzberg (24): abstract artificial legal person with rights and liabilities = Legal Fiction [Note: in Australia a company is registered and sometimes is referred to as a corporation] 7 Distinguish corporate & non corporate Depends on size, profit motives, taxation treatment, liability, ease and expense of a set-up Corporate forms of association are dealt with under the Corporations Act 2001 (and related regulations) Non corporate by common law and / or other legislation 8 Non Corporate forms of business association Sole trader Partnership Unincorporated association Trust Joint venture 9 3

4 Corporate forms of business association Corporation = name given to the entity that is incorporated under the CA It usually is a company CA allows for incorporation of other entities such as sports associations Outsize partnerships ***Company and corporation are usually terms used interchangeably**** 10 Corporations formed by Registration 1. Incorporated association: Part 3 Associations Act NT (similar legislation in other states) Not for profit Example : Darwin Sailing Club made up of several associations: Cruising Yacht Association of the NT (CYANT) Multihull Association of the NT (MANTA) Under Thirty Yacht Association (UTYA) Tasar Association of the NT Laser Association of the NT Wise v Perpetual Trustee Co Ltd [1903] AC Corporations formed by Registration 2. Registered Companies (focus in this unit): registered under the CA several types of company can be registered classified according to their size, liability of members, public status Liability of members: (a) Limited company (b) Unlimited company Public Status: (a) Public (listed on ASX) (b) Private (Pty) Size: (a) Large Pty (b) Small Pty 12 4

5 Corporations formed by Registration Liability of members Limited Company S 9 CA: "limited company" means: (a) a company limited by shares; or (b) a company limited by guarantee; or (c) a company limited both by shares and guarantee; but does not include a no liability company 13 Corporations formed by Registration Liability of members Limited by Shares Most common form Must have Ltd or Limited in name S 516 CA: if company wound up each shareholder/member is only liable for any amount that is unpaid (if any) on their shares eg S paid $1.20 for 1,000 shares then liable for $1,200 if paid upfront - nothing unpaid -they don t owe anything If only paid $1 ea. up front- liable $ Corporations formed by Registration Liability of members Limited by Guarantee Most commonly set-up for charitable purposes/not-for-profit org. S 517 CA : member not required to contribute any capital unless and until there is a shortfall when a company is wound up Subject to s 518 CA : where a company limited by both shares and guarantee liable for aggregate of unpaid share capital and the full amount they guaranteed. (subject to s 519 please read) 15 5

6 Corporations formed by Registration Liability of members No Liability Company Must be a Public Co. and required to have NL in name S 112 (2) CA : A company may be registered as a no liability company only if: (a) the company has a share capital; and (b) the company's constitution states that its sole objects are mining purposes; and (c) the company has no contractual right under its constitution to recover calls made on its shares from a shareholder who fails to pay them. S9: "mining purposes" means any or all of the following purposes: (a) prospecting for ores, metals or minerals; (b) obtaining, by any mode or method, ores, metals or minerals; (c) the sale or other disposal of ores, metals, minerals or other products of mining; (d) the carrying on of any business or activity necessary for, or incidental to, any of the foregoing purposes; whether in Australia or elsewhere, but does not include quarrying operations for the sole purpose of obtaining stone for building, roadmaking or similar purposes. 16 Corporations formed by Registration Liability of members Unlimited Company S 9: no limit to the shareholder s liability "unlimited company" means a company whose members have no limit placed on their liability liability of the member is not limited to the share price single member could be liable for the entire shortfall if other members cannot pay Resemble partnerships 17 Corporations formed by Registration Company Status Public Companies Listed or not listed If listed- ASX Listing Rules S 9 CA defines Public Company to be something other than a proprietary company S 9 CA states that a proprietary company is defined by s 45A (1) 18 6

7 Corporations formed by Registration Company Status Public Companies Listed: Shareholder requirements (ASX Listing rules) 500 shareholders each holding parcel of shares worth at least $2000; or 400 shareholders each holding a parcel of shares worth at least $ % of which unrelated parties of the company Listed: Size requirement: profit test: last 3 financial years aggregate $1M or assets test: net tangible assets $2M Disclosing entities- defined in Pt 1.2A of the Corporations Regulations 2001 Enhanced disclosure scheme means periodic reporting and continuous disclosure 19 Corporations formed by Registration Company Status Proprietary Companies s 45A (1) states that a proprietary company is a company that is registered or converts to a proprietary company under the CA In addition: s 112- must be limited by shares or be an unlimited company with share capital s have no more than 50 non employee shareholders have different disclosure requirements depending on whether large or small Pty Co s 45A(2) and Part 2M.3 20 Corporations formed by Registration Company Status Proprietary Companies Small: s 45 A (2) if in a financial year it satisfies 2 of the following: the consolidated gross operating revenue for the company and any entities it controls for the financial year is less than $25M the value of the consolidated gross assets of the company and the entities it controls is less than $12.5M at the end of the year the company and the entities it controls have fewer than 50 employees Generally reduced reporting requirements (see ss ) Large : s 45 A (3) greater than $25M, greater than $12.5M, greater than 50 employees See s 292 for reporting requirements 21 7

8 Big v Small Function Membership Replaceable Rules / Constitution Directors Secretary Fundraising AGM Auditors Registered office Tutorial discussion - Prepare the distinction between public and private co s based on the above points 22 Other companies terminology Subsidiary and Holding Co Holding Co. controls or holds majority of shares in a subsidiary Definition s 46(a), s 47 CA Other sections relating to subsidiaries: s260a (financial assistance), s 588V X (insolvent trading), s 202B (remuneration disclosure) Related bodies corporate s 50 CA holding company of another body corporate subsidiary subsidiary of a holding company of another body corporate Associate see s 50AAA Beyond the scope of this course Shelf Company Can be sold to a person who wants an already incorporated company 23 Non corporate forms of association Partnerships Partnership Act state based S 5 NT Act: (1) A partnership is the relation between people carrying on a business in common with a view of profit, and includes an external partnership and incorporated limited partnership. (2) However, the relation between members of an association or incorporated body (other than an incorporated limited partnership) is not a partnership. (3) For this section, a reference to an association includes a reference to an association formed under a law in force in the Territory. 24 8

9 Non corporate forms of association Partnerships joint traders come together to trade (eg. accounting services) and are bound by a contract (partnership agreement) not a separate entity a partnership is dissolved on retirement death or bankruptcy of one of the partners- unless the partnership agreement stipulates otherwise fiduciary relationship between partners Smith v Anderson [1880] 15 ChD Non corporate forms of association Partnerships partner continues to be liable for the liabilities of the partnership after they leave the partnership (eg in negligence) if they were a partner at the time of the event Chan v Zacharia [1984] 154 CLR 178 a partner can assign their interest in the partnership -partners can be liable for the actions of their fellow partners even when they act outside the terms of their partnership agreement ABN and register for GST and may need to register a business name 26 Non corporate forms of association (cont) Partnerships (cont) Liability of partners S13 Partnership Act NT : Each partner in a firm other than an incorporated limited partnership is liable jointly with the other partners for liabilities incurred by the firm while the partner is that partner. The estate of the partners is liable severally for liabilities (a) to the extent to which the liabilities remain unsatisfied; and (b) only after the separate liabilities of that partner have been satisfied. 27 9

10 Non corporate forms of association (cont) Partnerships (cont) Liability for loss or injury s 14: A firm other than an incorporated limited partnership is liable to the same extent as a partner in the firm for any loss, injury or penalty caused by an act (including omission) of the partner if: (a) the act occurred while the partner was acting in the ordinary course of the firm's business or with the authority of the other partners; and (b) for a loss or injury - the loss or injury is not suffered by a partner in the firm. 28 Non corporate forms of association (cont) Size of partnerships S115 CA Max number of partners is 20 The Corporations Regulations may (under s 115 (2)) specify a different amount For lawyers it is 400, for accountants it is Corps Regs reg 2A.1.01 : 29 Non corporate forms of business associations Sole Trader ABN Australian business number register for GST if business name different from the name of person- register the business name at NT Dept Justice- Office of Consumer and Business Affairs ter_business_name.shtml assets and liabilities of the business are not separate from the owner do not need to report to anyone about how the business is running 30 10

11 Non corporate forms of business associations Trust trustee required to hold or invest property on behalf of beneficiary trust cannot be sued or cannot sue like a company can trust itself does not incur debts and liabilities nor can it own assets generally a trustee can be indemnified from the trust fund- but only for liabilities properly incurred trustees are subject to fiduciary duties taxation - not a separate entity rule against perpetuities- means it cannot exist indefinitely 31 Non corporate forms of business association (cont) Joint Venture single undertaking for a specific time or trade frequently in mining and petroleum industry assets held as individual shares by joint venture parties as tenants in common liability is individual instead of several Profits are received separately and invoices issued separately and paid individually Parties can dispose of their interest without need to assign Note sometimes contract as JV but in fact partnership Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume sales (Finance) Pty Ltd [1974] 131 CLR Non corporate forms of business association (cont) Unincorporated not - for - profit association any profits made by the association are used solely for the purposes for which the association was formed no distribution of the profits permitted not a separate legal entity Bradley Egg Farm Ltd v Clifford [1943] 2 All ER

12 Compare corporate with non corporate Compare company with partnership Nature of the business structure Liability of members Company- limited liability v partnership unlimited Legal regulation Company- greater complexity and formality v sole trader less formality and regulation Set up Sole trader- less v company- costly Tutorial discussion prepare and discuss points of comparison between corporate and non corporate entities 34 Registering a company S117 application Form 201 (ASIC website) Name available name or CAN ss A name can be reserved with form 410 (ASIC website) **don t forget the name must reflect its status eg PTY LTD Directors, secretaries, company officers, members ss 114,120, ss 201A D, ss 204A D S 121 registered office S118 registration is carried out after application under s 117 and fee is paid S119 company comes into existence upon registration S118 (1) (a) ACN allocated S118 (1) (c) certificate of registration and ACN issue S 123 and S company seal or signing on behalf 35 ASIC Australian Securities and Investments Commission Australian Securities and Investments Act 2001 (ASIC Act) ROLE: responsible for administering the Corporations Act 2001 consumer protection (FIDO website) and market integrity aspects of Insurance and superannuation legislation enforces and regulates company and financial services laws to protect consumers, investors and creditors

13 OBJECTIVES of ASIC ASIC S 1 (2) ASIC Act to maintain, improve etc performance of the financial industry..in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy Promote the confident and informed participation of investors and consumers in the financial system Administer efficiently the laws that confer functions and powers on ASIC Receive, process and store information given to it under the laws that confer functions and powers on it Ensure information is publicly available Take whatever action it can take to enforce and give effect to the laws that confer functions on it 37 FUNCTIONS ASIC S 11 ASIC Act Has functions conferred on it by the CA Has additional functions set out in s 11 (2) (9) ASIC Act administrative, advisory functions S 12A ASIC Act functions : to administer other Acts (apart from ASIC and CA): Insurance Contracts Act 1984 Superannuation (Resolution of Complaints) Act 1993 Superannuation Industry (Supervision) Act 1993 Retirement Savings Accounts Act 1997 Life Insurance Act 1995 Medical Indemnity (Prudential Supervision and Product Standards) Act Can register companies ASIC Can find out about other companies public informationon the ASIC databases (eg ASCOT) regulation of financial services market Takeovers regulation Powers of investigation s 13- wide investigatory and information gathering powers where it suspects there has been a breach of the corporations law - eg s 19 ASIC Act Powers to bring legal proceedings- civil proceedings or refer criminal to the Cth DPP Consumer protection: Fido website 39 13

14 Registering a Company ASIC website: How to register a company Step 1: Decide on your business structure Step 2: Choose a company name Step 3: Determine if you will operate under replaceable rules or a constitution or a combination of both Step 4: Obtain consents - member(s), director(s) and secretary(secretaries) Step 5: Complete and lodge the application form Step 6 (optional): Get a commemorative record of registration Step 7: Get to know your legal obligations More company information 40 Movie time: ure=related re=related Tutorials: Please refer to tutorial section on Learnline Remember to research on corporate scandals for Assignment 1 eg. of an international scandal