Acc Company characteristics + shares

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What is a company?

A separate legal entity established under the Corporations Act 2001 that can enter legal contracts, own property, sue and be sued in its own name.

What does limited liability mean for shareholders?

Shareholders are only liable for the debts of a company up to the amount unpaid on their shares; their personal assets are protected.

What is the Corporations Act 2001?

Federal legislation that regulates the formation, administration, duties of directors, raising of funds, and winding up of Australian companies. Enforced by ASIC.

What are the two types of companies studied in Unit 4?

Large proprietary companies (Pty Ltd) and public companies (Ltd).

What are the minimum director requirements for a proprietary vs public company?

Proprietary: minimum 1 director. Public: minimum 3 directors (2 must reside in Australia).

What are the shareholder limits for a proprietary vs public company?

Proprietary: maximum 50 non-employee shareholders, minimum 1. Public: unlimited shareholders, minimum 1.

What is continuity of existence (perpetual succession)?

A company continues in existence even if shareholders die or transfer their shares; ownership changes do not affect the company's legal life.

What is separation of ownership and management?

Shareholders own the company but elect a board of directors to manage it; directors hire a CEO and other officers for daily operations.

What makes a proprietary company 'large'?

It satisfies at least two of: revenue $50m or more, gross assets $25m or more, or 100 or more employees at year end.

What is a prospectus?

A document issued by a public company inviting the general public to purchase shares; it contains all information a reasonable investor needs to make an informed decision.

What must a prospectus include?

Past financial reports, future projections, information about directors, expert reports, how funds will be used, number and price of shares, application form and deadline.

What are replaceable rules?

Default rules in the Corporations Act 2001 that govern company management (e.g. director powers, voting, share transfers); they can be replaced by a company constitution.

What is a company constitution?

A contract between the company, shareholders and directors that sets out the rules for how the company will operate; it can replace or work alongside replaceable rules.

What are four duties of a company director?

(1) Act with care and diligence, (2) act in good faith in the company's best interests, (3) not make improper use of position or information, (4) prevent the company from trading while insolvent.

What is insolvent trading?

When a company incurs debts it cannot pay when due. Directors must prevent this or face civil penalties up to $200,000, compensation orders, or criminal charges including imprisonment.

What are four rights of shareholders?

(1) Receive dividends from profits, (2) attend and vote at general meetings, (3) receive a copy of annual financial reports, (4) dispose of or transfer their shares.

What is the role of ASIC?

Australia's corporate, markets and financial services regulator; enforces the Corporations Act, monitors company compliance, and makes financial information available to the public.

What is the role of the AASB?

Develops and issues Australian Accounting Standards with the force of law; contributes to a single global set of accounting standards.

What is the role of the ASX?

Requires listed public companies to comply with listing rules, including providing half-yearly reports, preliminary final statements and other price-sensitive information to the market.

What is the role of the IASB?

An independent international body that sets global accounting standards (IFRS) to provide capital markets with a common language for financial reporting.

What is an IPO (Initial Public Offering)?

When a company issues shares to the public for the first time, accompanied by a prospectus lodged with ASIC.

What are ordinary shares?

Units of ownership in a company that give holders voting rights and an entitlement to dividends (not guaranteed); ordinary shareholders rank last if the company is wound up.

What are bonus shares?

Shares issued free to existing shareholders in proportion to their holdings, funded from reserves; total shareholders' equity stays the same.

What is the 4-step cash share issue process?

(1) Dr Cash at Bank / Cr Applications-ordinary. (2) Dr Issue Costs / Cr Cash at Bank. (3) Dr Applications-ordinary / Cr Share Capital. (4) Dr Share Capital / Cr Issue Costs.

What are share issue costs?

Costs directly related to issuing shares (printing prospectus, professional fees, underwriting); deducted from equity by debiting Share Capital and crediting Cash at Bank.

What are preliminary expenses?

Start-up costs to register and commence trading (ASIC fees, legal fees); classified as expenses on the Income Statement, not share issue costs.

What is the journal entry for a bonus share issue?

Dr General Reserve (or Asset Revaluation Reserve) / Cr Share Capital, with the narrative "Issue of bonus shares."

What is the journal entry for an asset revaluation?

Dr Asset (e.g. Land) / Cr Asset Revaluation Reserve, to record the upward revaluation of a non-current asset.

What is a final dividend and how is it recorded?

A dividend approved by shareholders at the AGM. Declared: Dr Retained Earnings / Cr Final Dividend Payable. Paid: Dr Final Dividend Payable / Cr Bank.

What is an interim dividend and how is it recorded?

A dividend declared and approved by directors mid-year. Declared: Dr Retained Earnings / Cr Interim Dividend Payable. Paid: Dr Interim Dividend Payable / Cr Bank.

What is the Retained Earnings account?

A ledger account showing cumulative net profits; debited for dividends paid and transfers to reserves; credited for profit after tax and transfers from reserves.

What items appear in the Retained Earnings ledger?

Opening balance (CR), profit or loss for the period, interim dividends paid (DR), final dividends paid (DR), transfers to reserves (DR), transfers from reserves (CR).

What is the Annual General Meeting (AGM)?

A yearly meeting required by the Corporations Act for all public companies; shareholders receive financial reports, elect directors, approve final dividends and appoint auditors.

What is an external auditor and their purpose?

An independent qualified accountant appointed by shareholders at the AGM to verify that a company's accounts are fair and true and prepared in accordance with Australian Accounting Standards.

What is a qualified audit report?

A report issued when the auditor does not believe the company's accounts are correct, fair or true.

What is the company income tax rate?

30% for public companies; 27.5% for eligible small business companies.

What is the Applications-Ordinary account?

A temporary liability account used during a share issue to record money received from investors before shares are formally allotted.

What is the Asset Revaluation Reserve?

An equity account created when non-current assets are revalued upward; commonly used as the source of funds for bonus share issues.

What is the General Reserve?

An equity account used to set aside retained profits for future business needs; can be used to fund bonus share issues or transferred back to retained earnings.

What is the difference between the primary and secondary share market?

The primary market is where a company issues new shares directly to investors (e.g. via an IPO). The secondary market is where those shares are subsequently traded between investors on the ASX.

What must a large proprietary company do each year?

Prepare and lodge a financial report and directors' report with ASIC; accounts must be audited unless ASIC grants an exemption.

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