corporatioms - nature and formation

What is a company?

A company is a separate legal entity from its owners, giving it the same rights as a natural person — it can incur debt, sue and be sued. Owners are called shareholders or members.

What is the liability of owners in a company?

Limited liability — shareholders are only liable for the unpaid amount on their shares. Personal assets are protected from company debts.

How many shareholders can a proprietary company have?

A maximum of 50 shareholders.

How many shareholders can a public company have?

No maximum — ownership is usually widespread with a large number of people owning small amounts of shares.

How many directors does a proprietary company need?

A minimum of one director.

How many directors does a public company need?

A minimum of three directors, with at least two residing in Australia, plus one secretary who must also reside in Australia.

What is the ability of a proprietary company to raise capital?

Can only raise funds from existing shareholders and employees — cannot approach the general public for capital.

What is the ability of a public company to raise capital?

Can invite the general public to buy shares, usually through a prospectus. Shares are easily tradeable on the ASX.

How are profits distributed in a proprietary company?

Dividends are paid to a maximum of 50 shareholders, so profits are shared among a smaller concentrated group.

How are profits distributed in a public company?

Dividends are paid to a potentially very large number of shareholders, spreading profits widely across many investors.

How is ownership transferred in a proprietary company?

Restricted — shares can only be issued to existing shareholders and employees, keeping ownership within a limited group.

How is ownership transferred in a public company?

Shares are freely and easily transferable on the ASX. The company registers the transfer and updates the Register of Members.

What is a legal entity?

A company is a separate legal entity — it can buy and sell property, enter contracts, sue and be sued in its own name. It pays tax at a flat rate of 30%.

What is continuity of existence?

A company has indefinite life and continues to exist even if shareholders change. Transfer of shares does not affect the company's continuity.

What is separation of ownership and management?

Shareholders own the company but do not manage it. They elect a board of directors, who hire a CEO and officers to run daily operations.

What is the Corporations Act 2001?

A federal statute that regulates the formation, administration, duties of directors, raising of funds and winding up of companies in Australia. Enforced by ASIC.

What is a prospectus?

A document issued by a public company inviting the general public to buy shares. It includes financial reports, future projections, director information and share details.

What are four rights of shareholders?

1. Receive dividends 2. Attend and vote at AGMs 3. Receive annual financial and directors reports 4. Dispose of (sell) their shares

What are four duties of directors?

1. Act with care and diligence 2. Act in good faith in the company's best interests 3. Not trade while insolvent 4. Not misuse their position or information for personal gain

What is the difference between replaceable rules and a constitution?

Replaceable rules are default rules set out in the Corporations Act. A constitution is a custom document that can replace or add to those rules to regulate a company's internal affairs.

What is ASIC?

Australia's corporate, markets and financial services regulator. It enforces the Corporations Act, regulates companies and ensures financial markets are fair and transparent.

What is the AASB?

The Australian Accounting Standards Board — an independent body that develops and issues accounting standards that have the force of law under the Corporations Act.

What is the ASX?

The Australian Securities Exchange — a stock exchange where public company shares are bought and sold. Listed companies must comply with ASX listing rules.

When is a proprietary company considered large?

When it meets at least two of: revenue of $50M+, gross assets of $25M+, or 100+ employees.