Registration and
regulation of
companies
Corporate Law: Law principles and practice
Registration of a company (incorporation)
Historically, a company could be created by royalty or,
later, by an Act of Parliament.
Companies are now created by being registered with
ASIC.
A promoter can buy a ‘shelf company’, or can complete
the registration process themselves.
Corporate Law: Law principles and practice
Registration of a company (incorporation) cont …
A partnership business that reaches 20 members is
required to register as a company (Corporations Act 2001
(Cth) s 115(2)), unless it falls within one of the
exemptions.
Foreign companies (those registered outside Australia)
must register with ASIC (s 601DA) if they wish to carry
on business in Australia.
Corporate Law: Law principles and practice
Registering a company
Pre-registration requirements
An application must be lodged with ASIC. A company
may choose not to apply for name.
The application for registration must contain the
following (Corporations Act 2001 (Cth) s 117(2)):
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the type of company that is proposed
the company’s proposed name, unless the ACN is to
be used in its name
the name and address of each person who consents to
become a member
Corporate Law: Law principles and practice
Registering a company cont …
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the name and birthdate of those consenting in writing
to become directors
the name and birthdate of those consenting to become
the company secretary
the address of each person who consents in writing to
become a director or company secretary
the address of the company’s proposed registered office
the proposed opening hours of the registered office (if
not the standard opening hours) for a public company
the address of the company’s principal place of
business (if not the address of the proposed registered
office)
Corporate Law: Law principles and practice
Registering a company cont …
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for a company limited by shares or an unlimited
company, the number and class of shares, and the
amount agreed to be paid for each share (in writing),
and if not fully paid, the amount agreed to be unpaid
(in writing) on each share
for a public company limited by shares, or an
unlimited company, the details of an issue of shares for
other than money
for a company limited by guarantee, the proposed
amount of the guarantee (in writing) by each member.
Corporate Law: Law principles and practice
Registering a company cont …
An application may require a company constitution (e.g.
a no-liability company that must restrict its activities to
mining).
ASIC (if satisfied) will register the company and issue it
with a certificate.
The certificate records the company’s name, ACN, type of
company, a statement that it is registered and the date of
registration.
A company comes into existence on receiving that
certificate (Corporations Act 2001 (Cth) s 119).
Corporate Law: Law principles and practice
Post-registration procedures
Once a company is registered, it must:
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update ASIC on any changes that have taken place (for
example, change of address or directors)
display some notice as to the address of the company
the persons consenting to become a member, director
or company secretary on the application take on their
role (Corporations Act 2001 (Cth) s 120(1)); if not, the
company secretary must be appointed (s 204D)
choose to have a seal and, if it does, the seal must
contain the ACN and the company name (s 123(1))
establish financial records (s 286) and minute books to
record meeting resolutions (s 251A)
Corporate Law: Law principles and practice
Post-registration procedures cont…
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appoint an auditor (if a public company or large
proprietary company) (s 327A)
appoint a public officer for tax purposes (s 252)
establish registers of shareholders, charges and
debentures (s 168)
issue shares, if relevant (s 1096)
hold an annual general meeting if a public company (s
250N).
Corporate Law: Law principles and practice
Post-registration procedures cont…
A company will be considered to be active unless
deregistered by ASIC Corporations Act 2001 (Cth) (s
601AD(1)).
A company must disclose in its annual review any
changes that take place within the company and pay an
annual fee.
A company must display its name and company type (in
an abbreviated form) according to statutory provisions: ss
148, 149.
Corporate Law: Law principles and practice
Advantages and disadvantages of the company
form
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The separate entity of a company gives general
protection to officers, employees and members (with
some exceptions).
Members have limited liability according to the
amount of shares paid up (unless an unlimited
company).
It has a continual existence, even though its members
and management may change.
Ownership in the company can easily be transferred by
the selling of shares.
Shareholders can control and elect the management of
a company according to their holding of shares.
Corporate Law: Law principles and practice
Advantages and disadvantages cont …
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A company can make contracts with its shareholders
since they are separate entities.
There are no limits on the number of shareholders,
unless the company is a proprietary company.
There may be certain tax advantages, as a company
pays a low fixed-percentage tax and franking of
dividends is possible.
A company can readily raise capital for large
undertakings.
A company can own property in its own right, and sue
and be sued through its own personal entity.
A company can be wound up according to a statutory
procedure.
Corporate Law: Law principles and practice
Disadvantages
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The corporate form is much more regulated and,
consequently, more expensive to establish and run because
of the Corporations Act 2001 (Cth).
The Corporations Act 2001 (Cth) and existing case law
impose far greater duties and hence penalties on officers
and directors of the company, including criminal sanctions.
There tends to be less privacy in the company form since
financial reports must be disclosed to ASIC and to
members.
The company is a more rigid business form and it may be
more difficult to change the company constitution or its
format.
Where a corporate form is used and many shares are
issued, it is possible for the original owner to lose control
of the organisation they founded.
Corporate Law: Law principles and practice
Registering a company
Types of companies that can be registered
Types of companies (s 112)
Proprietary companies
Limited by shares
Unlimited with share capital
Public companies
Limited by shares
Limited by guarantee
Unlimited with share capital
No-liability company
Corporate Law: Law principles and practice
Registering a company cont …
Legal requirements
The Corporations Act 2001 (Cth) applies to corporations.
Some non-corporate bodies will be subject to the
Corporations Act if they trade interstate.
Trade Unions and some specific bodies are not covered by
the Corporations Act.
Corporate Law: Law principles and practice
Public companies
A company that is not registered as a proprietary company is
deemed to be a public company.
A public company is the most regulated form of company.
A public company can be listed on the ASX, can offer its
securities to the public and has no limits on the number of
members it can have.
A public company can be limited or unlimited by shares, and
only public companies can be no-liability or guarantee
companies.
A public company can form with just one member
(Corporations Act 2001 (Cth) s 114) but must have a
minimum of three directors (s 201A(2)), so it cannot be a
one-person company.
Corporate Law: Law principles and practice
Public companies cont…
Some main features of a public company are:
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it has no restriction on its ability to raise capital from the
public through issuing shares or borrowing
it must have a company secretary (Corporations Act
2001 (Cth) s 204A)
it must hold an annual general meeting (s 250N)
it must appropriately prepare, and lodge with ASIC, an
annual financial report (s 292), including details about
directors (s 300(10))
there are certain restrictions on related transactions with
the company (for example, receiving loans by directors
is quite regulated).
Corporate Law: Law principles and practice
Proprietary companies
Proprietary companies are sometimes referred to as private
companies, and tend to be smaller than public companies.
The main characteristics of a proprietary company are:
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it can form with one person
it must have share capital and can be limited or unlimited
it is limited to not more than 50 non-employee shareholders
(Corporations Act 2001 (Cth) s 113(1)), although
membership can exceed 50 when other members are
employee shareholders
it does not have to hold an annual general meeting (ss
250N, 250P)
it must not engage in any activity that would require
disclosure when offering securities
Corporate Law: Law principles and practice
Proprietary companies cont …
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it can pass ordinary resolutions without the need for
general meetings by using a circulating resolution (s
249A); special resolutions must be passed by a general
meeting (s 249L)
a quorum for a meeting need only be two persons (s
249T)
loans can be made to directors
a proprietary company can restrict the transfer of its
shares
there is no restriction on the age of directors after the age
of 72 (s 288)
it can appoint an auditor or liquidator from its own
officers or employees (s 324(1)(f), (2)(g)−(h), 532)
it is less regulated than a public company.
Corporate Law: Law principles and practice
Small and large proprietary companies
A company can be classified as a small proprietary company if
in a financial year it can satisfy any two of the following
conditions (Corporations Act 2001 (Cth) s 45A(2)):
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a gross operating revenue of less than $25 million
consolidated gross assets of less than $12.5 million
fewer than 50 employees.
If a proprietary company is not a small proprietary
company, then it is a large proprietary company (s 45A(3)).
Small proprietary companies do not have to lodge annual
financial reports (s 304) or have them audited (s 301), unless
required to so by ASIC (s 292) or a member.
Large proprietary companies do have to lodge annual financial
reports, which makes them more expensive to run.
Corporate Law: Law principles and practice
Company limited by shares
The majority of Australian companies are limited by
shares (Corporations Act 2001 (Cth) s 112(1)).
Members of a company are shareholders and have
limited liability up to the paid-up amount of the share (s
516).
A member is liable for any amount that is unpaid on a
share.
Corporate Law: Law principles and practice
One-person companies
The Corporate Law Economic Reform Program
(CLERP) has allowed companies to form with one
person since Statewide Tobacco Services Ltd v Morley
[1993] 1 VR 423.
Corporate Law: Law principles and practice
One-person companies cont …
A company can now form with one member, who is both
the shareholder and director.
The replaceable rules, with some exceptions (see
Corporations Act 2001 (Cth) s 135(1)), do not apply to
one-person companies that do not have meetings or vote.
Some provisions apply (see next slide).
Corporate Law: Law principles and practice
One-person companies cont …
Some provisions:
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A director can manage all business of the company
(Corporations Act 2001 (Cth) s 198E).
A director can appoint another director in writing (s
201F).
A single director can make a resolution as to their own
remuneration and payment of their expenses on behalf
of the company (s 202C).
By placing a resolution in writing, a director can pass
resolutions, or deem them as passed, without
conducting a meeting (s 249B).
Outsiders dealing with the company can rely on ss 128
and 129.
Corporate Law: Law principles and practice
Holding companies
A holding company is a company that owns or controls
another company, which is referred to as a subsidiary of the
parent company.
A company is classified as a subsidiary according to s 46(a)
and s 9 of the Corporations Act 2001 (Cth) if another body:
• controls the board of directors
• controls the majority of votes
• holds more than half of the issued shares of the
subsidiary.
A holding company must prepare group financial reports so
that assets or money cannot be hidden.
A subsidiary cannot own shares in its holding company.
Corporate Law: Law principles and practice
Trustee companies
A number of companies are able to register as statutory
company trustees under state legislation, and can offer
particular services to the public related to trust-type
activities.
Corporate Law: Law principles and practice
Guarantee companies
A guarantee company is a public company in which the
members of the company do not limit their liability by the
holding of shares, but rather sign an agreement that they
will guarantee a certain amount in the event that the
company is wound up (Corporations Act 2001 (Cth)
s 517)
Note there are some old hybrid guarantee companies
which have shares (no new company is permitted to do
this).
Guarantee companies are used for not-for-profit purposes
and may remove Ltd from their name if satisfying certain
conditions.
Corporate Law: Law principles and practice
Unlimited companies
A company can register as an unlimited company, which
means that the members take unlimited liability on behalf
of the company.
There are vey few unlimited companies in Australia. They
may be used by assurance companies to indicate good
faith.
Corporate Law: Law principles and practice
No-liability companies
A no-liability company is a public company that is
registered as a mining company under the Mining Act, has
share capital and states in its constitution that its business
activities are confined to mining s 112(2)–(3) of the
Corporations Act 2001.
These are speculative high-risk types of companies.
If it issues partly paid shares, it cannot force a member to
pay the remainder on calls on those shares (s 112(2)(c)
and s 254M(1)–(2)), though they may then be confiscated.
A no-liability company is designated by the abbreviation
NL after its name (s 148(4)).
Corporate Law: Law principles and practice
Changing the status of a company
A proprietary company can convert to a public company
limited by shares or to an unlimited company—either public or
private—but not to a guarantee company or a
no-liability company.
There are some restrictions on converting to certain formats
(Corporations Act 2001 s 162):
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A proprietary company that seeks to convert to a public
company must pass a special resolution, lodge an
application with ASIC, and remove the word ‘proprietary’
from its name.
If a company contravenes its status as a proprietary
company then ASIC may order the proprietary company to
change its status (s 165).
A public company must follow a similar procedure to that
of a proprietary company and will still be liable for their
original debts and obligations.