Commercial and corporate law

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LAW205 Commercial & Corporate Law for Accountants

College of Business and Law

Week 1

Contact Details Unit Coordinator and Lecturer

WFD and external students lecturer

Guzyal Hill

Phone: (08) 8946 8860

E: [email protected]

Introductory/Administrative matters

Questions about the material covered in the lectures/tutorials may be addressed to the lecturer/tutor

Questions about administrative matters are to be addressed to the unit coordinator

Lecturers and Unit Coordinators DO NOT have authority to approve assignment extensions – see policy on Commerce Central (email form to [email protected], do not email your lecturer or unit coordinator)

Introductory/Administrative matters

Regular attendance

Prescribed book and legislation

Online resources – eg, austlii, ASIC website

Tutorial attendance will help your exam performance

Assessments (see Learnline for details)

Assignment No. 1 (Research Essay) – 20%

Assignment No. 2 (Case Study) – 30%

Open book exam (problem-based questions) – 50%

Assessments

Assignments must be submitted online (Learnline)

Direct email submissions to unit coordinator / lecturer will not be accepted

Plagiarism/collusion in respect of assignments will be acted upon and penalised

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

Week 1 Material (Topics)

Chapters 1, 2, 3

Introduction to Corporate Law: History, Administration and Reform

- Types of Companies

Registration

Partnerships & Incorporated Associations (briefly)

Introduction to Corporate Law

HISTORY, ADMINISTRATION AND REFORM

At the end of this topic you should know:

how the Corporations Law came into existence and how the scheme worked from 1991 until 2001;

why it was replaced by a Commonwealth Corporations

Act;

the role and functions of the Australian Securities and Investments Commission (ASIC); and

the major reform programs that have occurred and the process for future reforms.

Introduction to Corporate Law

Companies are artificial creations.

Characteristics of companies which we now take for granted were acquired gradually over a long period of time.

Australia has adopted several different legislative approaches to the regulation of companies over the years.

From 15 July 2001, a truly national regulatory scheme has finally been put in place.

Corporations Act 2001 (Cth)

Under this agreement, the States passed legislation referring the making and amending of laws in respect of corporations to the Commonwealth.

This legislation was passed by all States and the new scheme commenced on 15 July 2001 when the Corporations Act 2001 (Cth) and Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) came into force.

The substance of these statutes is largely the same as that of the former Corporations Law and ASIC Act.

Corporate Reform Programs Post-1991

From its introduction, the provisions of the Corporations Law underwent almost annual reform.

Some of the reforms were substantive, while others were aimed at simplifying the legislation and making sure that it used plain English wherever possible.

The two major reforms programs were the Corporations Law Simplification Program and the Corporate Law Economic Reform Program.

Australian Securities and Investments Commission

ASIC’s mission is to achieve maximum credibility for Australian financial and securities markets and, therein, for Australian companies.

The ASIC Act provides that ASIC is itself a body corporate.

It is comprised of between three and eight “members” and headed by a full-time Chair.

Australian Securities and Investments Commission

In general, ASIC’s main functions are:

regulation, and maintenance of corporate information;

investigation, surveillance and enforcement;

law reform and education; and

consumer financial protection.

Hierarchy of Corporations Law Bodies

CLERP

CAMAC*

ASIC*

Commonwealth

Parliament

Commonwealth

Treasurer

Parliamentary Joint

Committee on

Corporations and

Financial Services *

Takeovers Panel*

Australian

Accounting

Standards

Board*

Companies

Auditors and

Liquidators

Disciplinary

Board*

Business

Regulation

Advisory

Group

* Established under ASIC Act

Types of Companies

TYPES OF COMPANIES

At the end of this topic you should know:

how companies differ from other forms of association;

how various incorporated bodies can be formed;

how companies can be classified; and

the differences between public and proprietary companies.

Introduction

There exist a number of different types of business structures in the Australian economy.

Companies have proven to be popular because they provide a number of advantages including taxation considerations, limited liability and succession planning.

Non-corporate business structures such as partnerships, unincorporated associations, joint ventures, trusts and sole operators have also desirable qualities.

Non-corporate Forms

Sole trader

Partnership

Trust

Unincorporated not-for-profit association

Unincorporated joint venture

Non-corporate and Corporate Forms

Factors to consider when forming or managing a business should include:

separate business entity;

transferability of interest;

finance;

size, duration and formation;

ongoing disclosure requirements;

taxation; and

management and control

Non corporate forms of association

Partnerships

Partnership Act – state based

S 5 NT Act:

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.

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 247

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

( 2 doctors – in p’ship – significant part of partnership property - commercial lease – Chan refused to renew lease with partner – partnership terminated – Chan obtained lease in own name – Was lease an asset of partnership, despite ongoing dissolution of p’ship biz? Yes, based on fiduciary relationship)

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

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.

Non corporate forms of business associations

Sole Trader

ABN – Australian business number

if business name different from the name of person- register the business name at NT Dept Justice- Office of Consumer and Business Affairs

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

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

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 321

(promotion of rock concert JV by Fourth Media (FM) and Volume sales (VM) deemed partnership – FM granted rights of tickets to Canny G in security of debts - JV agmt – parties share profits, etc – there was mutual trust and reliance) Why important to make distinction between JV and partnership?)

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 378

(farmers contracted with UI poultry farmers to test chicken for disease – Committee liable and not members)

Types of Artificial Entities

Types of artificial legal entities

Royal

Charter

Corporations

sole

Bodies corporate

formed by registration under specific legislation

Corporations

created by

special legislation

Companies

registered under the

Corporations Act

Other incorporated

bodies eg, trade

unions, co-operative

societies

Public

authorities,

instrumentalities

or agencies

Incorporated Associations

Many not-for-profit organisations obtain the benefits of incorporation by registering under the associations incorporation legislation that is in force in each State and Territory.

The members of an incorporated association are protected from any personal liability.

The association may hold its assets and enter into contracts in the name under which it is registered.

Companies Registered Under the Corporations Act

There are several different types of companies that can be registered.

These different types of companies can be classified according to liability of the members, public status and size.

The main way companies are classified is according to the liability of members.

Companies Classified According to Liability of Members

Companies classified according

to liability of members

Each member’s

liability for company

debts limited in some

way

Each member’s

liability for company

debts is unlimited

Company

limited by

shares (public

or proprietary)

Company

limited

by guarantee

(public only)

No liability

company

(mining -

public only)

Unlimited

company

(public or

proprietary)

Companies Classified by Public Status

Companies classified according

to their public status

Public

company

Proprietary

company

Listed

Unlisted

Small

proprietary

company

Large

proprietary

company

Public and Proprietary Companies

Proprietary Companies Classified According to Size

Proprietary companies are further classified as “small” or “large” by applying certain objective tests of size and value to the business.

The definition of “small” or “large” are contained in s 45A(2)-(6): see [2.280].

Small proprietary companies generally do not have to prepare financial reports or have them audited”: s 292(1) and (2), and ASIC Regulatory Guide 115.

Proprietary Companies Classified According to Size

ASIC does have power to relieve a proprietary company from the audit requirements imposed by the Corporations Act in the circumstances set out in s 342(1).

ASIC has issued a Regulatory Guide which sets out the conditions under which it will relieve large proprietary companies from the audit requirements: Regulatory Guide RG 115.

Change of Status

After a company has been registered it is possible, in most instances, for it to convert to another type of company: see [2.330].

The procedures set out in ss 163-164 must be followed.

The requirements vary depending on the nature of the change, but include a special resolution of members.

Registration of a Company

REGISTRATION

At the end of this topic you should know:

which companies and other bodies must register under the Corporations Act;

the basic requirements for registration of a company; and

the ongoing and administrative requirements imposed by the Corporations Act.

INTRODUCTION

All companies and some other corporations that wish to carry on business in Australia must be registered under the Corporations Act 2001 (Cth).

Incorporation (that is, companies incorporated outside Australia: s.9) that wish to carry on business in Australia must obtain registration: see Pt 5B.2, Div 2.

The company is a separate legal entity from that date until its name is removed from ASIC’s register.

Which Bodies Must be Registered?

Pre-existing companies were automatically transferred to the Corporations Act when it came into force.

Registrable Australian bodies must register under Pt 5B.2, Div 1 if they wish to carry on business outside their home State or Territory.

Foreign companies that wish to carry on business in Australia must obtain registration: Pt 5B.2, Div 2.

Incorporation and Registration

When a person wants to incorporate a company or transfer their existing business to a company, they may buy a “Shelf company” from an accountant or solicitor.

The registration process involves lodging an application form.

The contents of the application are listed in s 117(2) and there is a standard form (Form 201) prescribed by Sch 2 to the Corporations Regulations 2001 (Cth).

Registration

Before lodging the completed application form, decisions will need to be made about the following:

type of company;

internal rules;

members;

directors;

share capital;

registered office; and

company name: s 119.

Steps for Registration of a Proprietary Company

Part 2A.2 sets out the requirements and procedure for registration.

1. Single member/director companies rely on s 198E or s 198E and own constitution.

2. Other proprietary companies rely on replaceable rules or adopt constitution.

3. Members sign consent to become members; Director and Secretary consent to act; Applicant signs consent to registration.

4. Application for registration form lodged at ASIC.

5. ASIC issues Certificate of Registration.

Registered Office

The application for registration must include the address of the company’s registered office in Australia.

The purpose of the registered office is to have a place where all communication and notices to the company may be sent: s 142.

It is not sufficient to specify a post office box, but the registered office can be premises occupied by someone else: s 100.

A proprietary company is not required to open its registered office to the public: s 173.

A public company should have its registered office open to the public each day for at least three hours per day: s 145.

ACN, ARBN and ABN

ASIC allots every company with an ACN upon registration.

Registrable Australian bodies are also given an ARBN: s 601CB.

However, the ABN will progressively replace the ACN and ARBN as the single business identifier for Commonwealth purposes.

ACN, ARBN and ABN

The identifying number must be displayed on:

the company’s common seal (if any) (s123(1));

its public documents (s 88A);

its cheques (ss 153-155);

every place at which the company carries on business and is open to the public (s 144); and

all documents lodged with ASIC (s 88A(1)(a)).

Company Names

The company’s name is chosen by the promoters and application can be made to “reserve” the name prior to lodgment of the application for registration of the company: s 152.

Certain companies limited by guarantee may be registered without the word “Limited” in the company name: s 150.

Promoters who wish to use the name of their company should first search the register of companies to see if the name they have chosen is available: s 147(1).

Company Names

Company names may infringe a trade mark or closely resemble an existing company or business name.

Care should be taken to avoid:

a breach of the tort of “passing off”;

a breach of s 18 of the Australian Competition and Consumer Act 2010 (Cth); and

an ASIC determination that the name is “identical” or “unacceptable”: Corporations Regulations, reg 6203, Sch 6.

Certificate of Registration

Once the application has been processed, ASIC gives the company its ACN and issues a certificate of registration: s 118(1).

The certificate of registration contains the following information:

company’s name, ACN and type;

that the company has been registered under the Corporations Act;

registered State or Territory; and

date of registration.

Ongoing Requirements

In summary, a graduated scale (of greater disclosure) applies beginning with small proprietary companies, then (unlisted) public companies, through to the most stringent requirements for “disclosing entities” (as defined in Pt 1.2A).

Disclosure must or may be required in relation to:

registered office, certain changes or events;

annual statement, financial records, financial reports;

minute books, registers, annual general meeting; and

continuous disclosure.

Company Searches

Anybody can, by paying the appropriate fee, conduct a search of any company or other body registered under the Corporations Act. Details accessible by the public includes:

name and ACN/ARBN/ABN, status of the company;

registered office;

officeholders, share structure, shareholders;

name of ultimate holding company;

principal activities; and

name of any liquidator appointed.

Please go the ASIC website and browse through a FORM 201

Proprietary Public

Shareholders 1 shareholder

max. 50

1 shareholder

no max.

Directors 1 director

(1 resident)

3 directors

(2 resident)

Finance can’t get funds from the

public

can get funds from the

public (with disclosure

document)

Listing can’t be listed can be listed or unlisted

	Proprietary	Public
Shareholders	1 shareholder max. 50	1 shareholder no max.
Directors	1 director (1 resident)	3 directors (2 resident)
Finance	can’t get funds from the public	can get funds from the public (with disclosure document)
Listing	can’t be listed	can be listed or unlisted