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
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