accounting company theory

company

an organisation established under the corporations act 2001 as a separate legal entity. a company can enter legal agreements, can own property and can sue and be sued in its own name

types of companies

proprietary company- a privately owned company whos shares are not offered to the general public and are held by a limited number of shareholders
public company- a company that can offer its shares to the public which can be bought or sold on a stock exchange

conditions for a large propreity company- must satifity 2/3

1. total revune for the financial year is 50 mil and up

2. total gross assets on the last day of the financial year is 25 mil and up

3. the company has 100 employees or more at the end of the financial year

large proprietary companies

must prepare and lodge financial and directors reports for each financial year. the accounts must be audited unless ASIC grants relief

small propreitary companies

only needs to produce audited financial reports if requested to do so by shareholders holding at least 5% of the companys shares or by ASIC

power of directors

set out by a company constitution or replaceable rules that include: the right to issue shares, to borrow money, to appoint and dismiss the senior managers in a company

duty of directors

duty of care and due diligence, duty to keep books and records, duty of not improperly use of position, duty to not trade while insolvent, duty of good faith, duty to disclose conflicts of interest

duty of care and due diligence

directors are responsbile for the affairs of a company and must comply with the legal obligations as a director per the corporations act 2001

duty to keep books and records

directors must maintain adequete financial records and must be fully up to date on what the company is doing, including the companys financial position and profit. a director is in breach of the corporations act 2001 if adequate financial records are not maintained

duty of not improperly use of positions

directors must not use their position or information to cause detriment to the company, or gain an unfair advantage (inside information) for themselves or for another person

duty to not trade while insolvent

directors must ensure that the company does not trade while insolvent. they must seek the appointment of liquidots if the company becomes insolvent

duty of good faith

directors must act in good faith and for a proper purpose for all decisions made that are in the companys best interest

duty to disclose conflicts of interest

directors must tell the board about any conflict of interest regarding the activities and decisions of the company

rights to shareholders- the right to repayment of capital in the case of liquidation

the ordinary shareholders are entitles to the repayment of their capital if the company is liquidated after all the creditors have been repaid. the constitution of the company may state that the preference shareholder have priority in return of their capital over the ordinary shareholders or the preference shareholders will rank equally with the ordinary shareholders for return of capital

rights of shareholders- the right to attend shareholders meetings

given at least three months notice of an impending AGM so that they are given time to read all information about the companys activities. they have the right to vote at meetings of shareholders and to elect the directors of the company

rights of shareholders- the right to recieve annual financial reports

before the next AGM. the reports are provided to give shareholders an opportunities to read the reports and note any questions or concerns to the board about them at the AGM

rights of shareholders- the right to recieve dividends

the right to recieve dividends once the dividend has been approved for payment

rights of shareholders- the right to dispose of their shares

this is unrestricted and can be to whoever they wish and at whatever price they wish

rights of shareholders - the right to inspect company records

shareholders can applu in court for the company to make the records available if they believe there are undisclosed conflicts of interest

replaceable rules

used to manage internal affairs of a company. a company can choose to have its own constitution or use the replaceable rules or use a combination of both

rr cover matters including:

• the appointment and removal of directors

• powers and responsibilities of directors

• who has the authority to approve a dividend payment

whats the corporations act 2001

a commonwealth act governing and regulating the formation and operation of companies in australia. its the main body of law that governs corporate structures

key areas covered by the corporations act

• defines and gives legal existence to a company

• sets out the duties of the directors of a company

• sets out external audit requirements of a public company

written company constitution

its a set of rules for the internal mangement of a company. the constitution can be used to modify or replace completly the replaceable rules in the corporations act 2001