Chapter 3
Types of Companies
Chapter Summary
1
REGISTRATION OF A COMPANY
The application (Form 201 or under electronic company registrations scheme) must be lodged at ASIC (s
117(1)) and must include (s 117(2)):
 the type of company (eg, a proprietary company or a public company)
 the class of company (eg, a company limited by shares, or guarantee, or both, or an unlimited
company or a no-liability company)
 the company’s proposed name (unless the Australian Company Number (ACN) is to be used)
 whether the company has a company constitution or will rely entirely on replaceable rules
 name & address of each person who consents to become a member, director or secretary
 the address of the company’s proposed registered office and principal place of business
 details of each member’s shareholdings, including whether the shares are fully paid
 details of the applicant for registration
 the State or Territory in which the company is taken to be registered
 whether, on registration, the company will have an ultimate holding company (defined in s 9)
 payment of the prescribed fee.
ASIC may then give the company an ACN, register the company and issue a certificate of registration: s
118(1). The certificate states the company’s name, ACN, type and date of registration, and State or
Territory in which the company is taken to be registered.
2
COMPANY NAMES
2.1
Protection of names
Protection of company, business and domain names is available through registration of the name as a
trademark under the Trade Marks Act 1995 (Cth). Protection may also be available through the common
law tort of passing off and the misleading or deceptive conduct provisions of the Trade Practices Act
1974 (Cth) and the various State and Territory Fair Trading Acts.
2.2
Types of company name
A company may have a name or use its ACN: s 148(1). ASIC assigns a unique ACN on registration.
In public companies with limited shareholder liability or with liability limited by guarantee, the word
‘Limited’ or the abbreviation ‘Ltd’ must be stated at the end of the company name: ss 148(2) and 149(1).
In proprietary companies with limited shareholder liability, the words ‘Proprietary Limited’ or the
abbreviation ‘Pty Ltd’ must be stated at the end of the company name: ss 148(2) and 149(1).
The word ‘Proprietary’ or the abbreviation ‘Pty’ must be stated at the end of the name of an unlimited
proprietary company: ss 148(3) and 149(1). A no-liability company must have the words ‘No liability’ or
the abbreviation ‘NL’ at the end of its name: ss 148(4) and 149(1).
ASIC may register a company limited by guarantee without ‘Limited’ in its name if its constitution
requires the company to pursue charitable purposes only: s 150(1)(a). The penalty for contravention is five
penalty units: s 1311, Sch 3 item15.
2.3
Use of company name
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A company must state its company name on all its public documents (defined in s 88A, and Practice Note
47 para 19 lists examples of public documents) and negotiable instruments: s 153(1). If the company’s
ACN is not used as its name, the company must also state its ACN on its public documents and negotiable
instruments: s 153(2). If the company’s name appears on two or more pages of the document, this must be
done on the first of those pages: s 153(2). The penalty for contravention of s 153 is 10 penalty units, or
imprisonment for three months, or both: s 1311, Sch 3 item 17. (A company does not have to state its
ACN on receipts such as cash register receipts: s 154.)
Practice Note 47, para 63, notes that obvious spelling mistakes and other minor errors that would not
confuse or mislead will not breach s 153, but the following would not comply with s 153:
 the omission of ‘Limited’ (eg Atkin v Wardle (1889) 5 TLR 734)
 a wrong ordering of the words making up the company’s name
 the omission of an ‘&’
 abbreviating ‘Michael’ to ‘M’ (eg Fancy Goods Ltd v Michael Jackson (Fancy Goods) Ltd
[1968] 2 QB 839)
In Jenice Ltd v Dan (1994) 12 ACLC 3,209, it was held that a misspelling by the omission of a letter in
the middle of a word was distinguishable from the omission of a whole word.
2.4
Availability of company name
A particular name is available as a company name unless the name is:
 identical to a name that is reserved or registered under the Corporations Act (s 147(1)(a))
 identical to a name that is included on the business names register (s 147(1)(b))

unacceptable for registration under the Corporations Regulations (s 147(1)(c)).
Schedule 6 of the Corporations Regulations specifies how the availability of names is determined.
“Virgin Mary’s” was found undesirable in Little v ASC (1996) 14 ACLC 1730; (1996) 22 ACSR 226.
A company or an individual may apply to ASIC to reserve a company name, and if the name is available
ASIC must reserve the name (s 152(1)) for two months, or such longer period as ASIC allows: s 152(2).
The minister may give consent to a name being available to a company even if the name is identical to one
reserved, registered or unacceptable for registration: s 147(2). The consent may be subject to certain
conditions: s 147(3).
2.5
Change of name
For a company to change its name, it must pass a special resolution adopting the new name and apply to
ASIC: s 157(1). Subject to the availability of the proposed name, ASIC must change the company’s name
and registration details: s 157(3). ASIC also has power under s 158(1) to direct a company in writing to
change its name (within 2 months: s 158(2)) where:
 the name should not have been registered in the first place; or
 the company has breached a condition under s 147(3) relating to ministerial consent.
The penalty for contravention is 50 penalty units or imprisonment for one year, or both: s 1311, Sch 3
item 20. If the company does not change its name within two months, ASIC may change the company’s
name to its ACN and alter the details of the company’s registration accordingly: s 158(3).
If the registered name of a company is changed through either s 157 or s 158, then ASIC must issue a new
certificate of registration: s 160.
Section 161(1) provides that a change of company name does not:
 create a new legal entity; or
 affect the company’s existing property, rights or obligations; or
 render defective any legal proceedings by or against the company: s 161(2).
2.6
Business names
Business name registration is governed by state & territory Business Names Acts and is not the same as
company name registration. Registered business names are included in the national business names
register. Searches of this register are possible through the relevant business names registration office in
each State or Territory. All registered business names are also listed on ASIC’s web site.
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Registration of a business name prior to the commencement of trading is compulsory, and failure to
register may result in a fine. The purpose of business name registration is to identify the owners of a
business operating under a particular business name. For example, B.M. Auto Sales Pty Ltd v Budget Rent
A Car System Pty Ltd (1976) 12 ALR 363 (an eg of passing off).
2.7
Domain names
To register a ‘.au’ domain name, an application must be made to .au Domain Administration Ltd (known
as auDA) at: www.melbourneit.com.au. Further information is available at this site.
2.8
Trademarks
A trademark is a distinctive mark or symbol that identifies the origin of goods or services distinguishing
them from a competitor’s goods and services. Although trademark registration is not compulsory,
registration gives the legal owner the right to commence court action for infringement. IP Australia
registers trademarks in Australia. Business, company and domain names can be protected through
registration as a trademark. Prior to applying for registration of a business, company or domain name, a
search of the trademark database at www.ipaustralia.gov.au should be made to determine whether there
are any registered or pending names similar to the proposed name.
3
REGISTERED OFFICE
A company must have a registered office in Australia, and any correspondence to the company may be
addressed to this office: s 142(1). Documents may also be served on a company by leaving them at, or
posting them to, the company’s registered office: s 109X(1). Where a company changes its registered
office address, it must notify ASIC within 14 days: s 142(2). The penalty for contravention of ss 142(1) or
(2) is five penalty units: s 1311, Sch 3 item 9.
3.1
Change of registered office address to a director’s address
If the company is not the occupier of the registered office, under s 100 the company must be able to
provide ASIC with the occupier’s written consent to the company’s use of the premises as its registered
office: s 143(1). The penalty for contravention of s 143(1) is five penalty units: s 1311, Sch 3 item10.
If ASIC becomes aware that the occupier has withdrawn consent to use the premises, then ASIC can
change the company’s registered office address to the residential address of a director of the company: s
143(2).
3.2
Display of company name at registered office
A company’s name must be prominently displayed wherever it carries on business that is open to the
public: s 144(1). Public companies (only) must also prominently display their company name and the
words ‘Registered Office’ at the company’s registered office address: s 144(2). The penalty for
contravention of s 144 is 10 penalty units, or imprisonment for three months, or both: s 1311, Sch 3 item
11.
3.3
Opening hours of registered office
There is no requirement for proprietary companies to have their registered office open to the public.
Public companies must open their registered office to the public each business day, either during the
specified standard hours or during certain chosen permitted hours: s 145(1). The standard hours each
business day are from at least 10 am to 12 noon, and from at least 2 pm to 4 pm. As an alternative,
the company may also choose at least three hours each business day between 9 am and 5 pm.
Where a public company chooses its own opening hours for its registered office, the hours must be
specified in its application for registration as a company: s 145(2). If a public company proposes to
change its chosen opening hours after registration, the company must notify ASIC prior to the change: s
145(3). The penalty for contravention of s 145(1) or (3) is five penalty units: s 1311, Sch 3 item12.
In INVENTION FINANCE PTY LTD V FLAVEL (1988) 6 ACLC 408, it was held that ‘open and
accessible to the public’ meant that members of the public could attend for the purpose of conducting
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business and this would not be possible in an unattended vacant room or improperly fitted-out office. The
registered office can be a residential house, but this must be clear to members of the public. In this case,
the registered office was not ‘open and accessible to the public’ in view of the nature of the residential
premises, the frequent absence of any person within the premises and the absence of any invitation to the
public to have unimpeded access and entry to the office.
3.4
Principal place of business
A company must notify ASIC of any changes to its principal place of business within 14 days: s 146(1).
The penalty for contravention of s 146(1) is five penalty units: s1311, Sch 3 item13.
Section 100 of the Corporations Act 2001 specifies how to determine the address of the registered office
of a company. In Golden Orchid v Comax (1995) 13 ACLC 1,091 the Court held that:
 Section 100 of the Corporations Law required a company to specify the full address of the
relevant office, including where applicable, the number of the room and of the floor or level of
the building on which the office is situated.
 Golden Orchid had only specified that its office was to be found at 274 Victoria Street, hence
service at this address was sufficient to satisfy the requirements of a statutory demand.
4
DEREGISTRATION
Section 119 provides that:
 a company comes into existence as a body corporate at the beginning of the day on which it is
registered;
 the company’s name is the name specified in the certificate of registration; and
 a company remains in existence until it is deregistered.
4.1
Voluntary deregistration
The following persons may lodge an application with ASIC to deregister a company (s 601AA(1)):
 the company
 a director or member of the company
 a liquidator of the company.
Where a company lodges an application, the person to whom notice is to be given of deregistration must
be nominated: s 601AA(1). The applicant must give ASIC any information that ASIC requests about
current or former officers of the company: s 601AA(3).
Under s 601AA(2) a person may apply for deregistration only if:
 all the members of the company agree to the deregistration
 the company is not carrying on business
 the company’s assets are worth less than $1000
 the company has paid all fees and penalties under the Corporations Act
 the company has no outstanding liabilities
 the company is not a party to any legal proceedings.
Under s 601AA(4), if ASIC is not aware of any failure to comply with ss 601AA(1) to (3), it must give
notice of the proposed deregistration on the ASIC database and in the Gazette. ASIC may then deregister
the company two months later: s 610AA(4). ASIC must give notice of deregistration to the applicant or to
the person nominated in the application to be given the notice: s 601AA(5).
4.2
ASIC-initiated deregistration
ASIC may decide to deregister a company under s 601AB(1) if:
 the company’s response to a return of particulars given to the company is at least six months late
 the company has not lodged any other documents in the past 18 months
 ASIC has no reason to believe the company is carrying on a business.
ASIC may also decide to deregister a company if:
 the company’s review fee in respect of a review has not been paid in full at least 12 months after
the due date for payment: s 601AB(1A)
 in circumstances related to the company’s winding up.
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Section 601AB(3) provides that if ASIC decides to deregister a company under s 601AB, it must give
notice of the proposed deregistration:
 to the company
 to the company’s liquidator
 to the company’s directors
 on the ASIC database
 in the Gazette.
ASIC may then deregister the company two months after the Gazette notice: s 601AB(3).
4.3
Effect of deregistration
A company ceases to exist on deregistration: s 601AD(1), but officers of the company may still be liable
for things done before the company was deregistered (the note to s 601AD(1)).
All of a company’s property vests in ASIC on deregistration: s 601AD(2) and ASIC has all the powers of
an owner vested in it (s 601AD(4)) but only takes the same rights that the company had ( s 601AD(3)).
Where the property that vests in ASIC was held by the company on trust, ASIC continues to act as trustee
of that property: s 601AE(1). Where the property that vests in ASIC was not held by the company on trust,
ASIC may dispose of or deal with the property as it sees fit and apply any money to the payment of
expenses of the company: s 601AE(2).
The persons who are directors immediately before deregistration must keep the company’s books for three
years after deregistration: s 601AD(5). The penalty for contravention is five penalty units: s 1311, Sch 3
item 150. This is a strict liability offence: s 601AD(6).
5
UPDATING ASIC INFORMATION
Previously, each company had to lodge an annual return with ASIC by 31 January each year.
5.1
Extract of particulars
Under the new system, each company has a review date – either the anniversary of the company’s
registration or a different date approved by ASIC under s 345C: s 345A(1). (The company may apply
under s 345B for a different review date).
Within two weeks after each review date for a company, ASIC must give to the company an extract of
particulars for the company (s 346A(1)) which must state the date of issue (s 346A(3)) and includes:
 ACN
 company name
 address of registered office and principal place of business
 details of each director and the company secretary
 issued shares
 details of shareholders.
Within 28 days of the date of issue (s 346C(3)(a)), tThe company must respond to an extract of particulars
that it receives if any particular set out in the extract is incorrect as at the date of receipt: s 346C(1).
5.2
Solvency resolution
Where a company has not lodged a financial report with ASIC within 12 months before the review date,
the directors of a company must pass a solvency resolution within two months after each review date for
the company: s 347A(1) and (2). If the directors:
 pass a negative solvency resolution, the company must notify ASIC within seven days: s
347B(1);
 do not pass a solvency resolution as required under s 347A, then the company must notify ASIC
within seven days after the end of the two-month period following the review date: s 347B(2).
The obligation is on the company, not the directors: s 347B(2), so as to avoid possible self-incrimination.
5.3
Return of particulars
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Under s 348A(1) ASIC can require that a company respond to a return of particulars where:
 the company has not paid the company’s review fee by the due date;
 ASIC has grounds to suspect that information recorded on the Register of Companies maintained
by ASIC may be incorrect; or
 the company has not lodged any documents with ASIC for a period of 12 months.
The return of particulars must specify the date of issue: s 348A(3). Under s 384B, ASIC may require that
a company provides answers to particular questions contained in the return of particulars.
Before lodging a response to a return of particulars, ASIC may require that the directors of a company
pass a solvency resolution: s 348C(2)(a). The response to the return of particulars must then state whether
the resolution passed was a positive solvency resolution or a negative resolution: s 348C(2)(b).
The response must be lodged within 28 days after the date of issue of the return: s 348D(2)(a).
6
THE SEPARATE LEGAL ENTITY PRINCIPLE & CORPORATE VEIL
Under the separate legal entity principle, a company has its own corporate personality and legal capacity.
A company enters into contracts and holds property using its corporate name, has its own assets, and can
sue and be sued in the corporate name. Examples of the principle are:
 SALOMON V SALOMON AND COMPANY LIMITED [1897] AC 22; [1895-9] ALL ER REP 33
 LEE V LEE’S AIR FARMING LTD [1961] AC 12
 MACAURA V NORTHERN ASSURANCE COMPANY LIMITED [1925] AC 619
(the decision would be different in Australia today, due to to s 17 of the Insurance Contracts Act
1984 (Cth) which modifies the common law position regarding insurable interest).
As a consequence of a company’s separate existence, a ‘corporate veil’ or ‘veil of incorporation’ is said to
arise between the company and its shareholders and directors.
As the veil may disadvantage creditors if shareholders or directors have acted improperly, the court may
“lift” the veil. The traditional common law categories of cases in which the corporate veil has been
lifted include agency, fraud, corporate groups, trusts. Statutory lifting of the veil can occur if the company
enters into a voidable transaction under s 588FE(1), or if the directors trade insolvently under s 588G, or
if a company gives financial assistance to a person for the purposes of acquiring shares in that company or
a holding company: s 260A
7
TYPES OF COMPANIES
7.1
Proprietary and public companies
A public company is a company other than a proprietary company (s 9) so a company must be either
public or proprietary. A proprietary company is a company that is registered as, or converts to, a
proprietary company under the Corporations Act 2001: s 45A(1).
A proprietary company must not have more than 50 non-employee shareholders: s 113(1). A company that
has more than 50 non-employee shareholders cannot register as, change to or remain a proprietary
company: s 113(1). Furthermore, under s 113(3) a proprietary company must not engage in any activity
that would require disclosure to investors under Chapter 6D of the Act, except for an offer of its shares to:
 existing shareholders of the company; or
 employees of the company or of a subsidiary of the company.
The penalty for contravention of s 113(1) is 50 penalty units or imprisonment for one year, or both: s
1311, Sch 3 item 2. The penalty for contravention of s 113(3) is five penalty units: s 1311, Sch 3 item 3.
ASIC may direct a proprietary company to change to a public company if it contravenes s 113: s 165.
A company (proprietary or public) must have at least one member: s 114.
Section 112(1) provides an exclusive list of the types of companies that can be registered (see Figure 3.3
in the text). Consequently, under s 112(1) these are the only types of companies that can be registered. Eg
a company limited by guarantee cannot be registered as a proprietary company under s 112(1).
Proprietary companies have different financial reporting obligations depending upon whether they are
classified as a small proprietary company or a large proprietary company (defined in s 45A).
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7.2
Classification according to liability
A ‘company limited by shares’ is a company formed on the principle of having the liability of its members
limited to the amount (if any) unpaid on their share: s 9. A shareholder’s liability is therefore limited to
any amount unpaid on their shares: s 516. Section 117(2) requires that the amount unpaid on a person’s
shares must be stated in the application for registration as a company limited by shares.
An ‘unlimited company’ is a company whose members have no limit placed on their liability if the
company is wound up: s9. Such companies are most commonly formed to operate professional practices
where professional requirements prevent any limit being placed on the liability of the members of the
firms; examples include firms of solicitors and accountants.
A ‘company limited by guarantee’ is a company formed on the principle of having the liability of
members limited to the amount each member guarantees to contribute to the assets of the company if it is
wound up: s 9. Therefore, upon the winding up of a company limited by guarantee, members only have to
contribute to the property of the company to the extent of their initial guarantee: s 517. Companies
limited by guarantee are more suited to non-profit associations such as sporting clubs and charities.
However, most non-profit associations would now incorporate under the relevant State Act regulating
incorporated associations.
Prior to 1 July 1998, it was possible to register a company limited by both shares and guarantee. Few
companies registered in this way. A reason for this type of company was that if a company limited by
guarantee wanted to raise capital through the issue of shares, prior to 1 July 1998 the company had to
convert to a company limited by both shares and guarantee. It was not able under the existing law to
convert directly to a company limited by shares. Following the changes to the Corporations Law
introduced on 1 July 1998, a company limited by guarantee could convert directly to a company limited
by shares. However, any company registered prior to 1 July 1998 as one limited by shares and guarantee
could continue to exist. It did not have to convert to another type of company.
Section 112(2) provides that a company may be registered as a no-liability company only if:
 the company has share capital
 the company’s constitution states that its sole objects are mining purposes (defined in s 9)
 the company has no contractual right to recover calls made on shares from a shareholder who
fails to pay them.
Only a public company can register as no-liability company: s 112(1).
A no-liability company must:
 not undertake any activity that is outside the objects in its constitution relating to mining
purposes: s 112(3), and.
 either have the words ‘No Liability’ or the abbreviation ‘NL’ at the end of its name: ss 148(4),
149(1). The penalty for contravention of s 148(4) is ten penalty units, or imprisonment for three
months, or both: s 1311, Sch 3 item 14.
7.3
Changing company type
Where a company passes a special resolution to change its company type and complies with ss 163 and
164, the conversions set out in Figure 3.4 in the text are permitted: s 162(1).
A public company cannot convert to a proprietary company without complying with s 113.
Under s 162(2), a public company limited by shares can only change to a no-liability company if:
 mining is the company’s sole purpose
 the company has no contractual right to recover calls from a shareholder who does not pay
 the company’s issued shares are fully paid up.
To convert from one type of company to another, the company must apply to ASIC: s 163(1). The
application must include (s 163(2)):
 a copy of the special resolution to change type;
 the company’s new name if a change is required;
 where a company limited by guarantee converts to a company limited by shares, a statement
signed by the directors that in their opinion the company’s creditors are not likely to be
materially prejudiced by the change and the reasons for their opinion
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

If the company is limited by shares or by guarantee, an assent signed by all members of the
company;
If a proprietary company converts to a public company, copies of the company’s constitution (if
any) and any document stating the rights attached to issued and unissued shares.
Under s 164(1), ASIC must alter a company’s registration details to reflect a change in company type if it
is satisfied that the company has complied with s 163. ASIC may direct the company to notify some or all
of its creditors of the proposed conversion: s 164(2)(a). Prior to making its decision, ASIC:
 may also direct the company to invite the creditors to make submissions to ASIC regarding the
proposed change of company type: s 164(2)(b); and
 must give one month’s notice on its database and in the Commonwealth Gazette: s 164(3).
Within this period, ASIC cannot register a change of type if a court or the AAT orders that the change is
not to be registered: s 164(3). If there is no such order by a court or the AAT, then after the one-month
period, ASIC must register the change and provide the company with a new certificate of registration: s
164(6). The change can then not be reversed by the AAT or by a court: s 164(7). Following the change,
persons such as trade creditors could still apply to a court for damages in respect of the change.
The one-month time period cannot be reduced: RE INFOMEDIA PTY LTD [2000] NSWSC 649; (2000)
18 ACLC 625; (2000) 34 ACSR 682.
7.4
ASIC direction to change from a proprietary to a public company
Under s 165(1), ASIC has power to direct a proprietary company to convert to a public company within
two months if the company has not complied with s 113. The company must comply: s 165(2) and if it
fails to do so, ASIC may change the company’s registration from a proprietary company to a public
company: s 165(3). This takes effect once ASIC alters the registration details: s 165(4). An offence based
on a contravention of s 165(2) is a strict liability offence: s 165(2A). The penalty for contravention of s
165(2) is 50 penalty units, or imprisonment for one year, or both: s 1311, Sch 3 item 23.
7.5
Effect of change of type
Section 166(1) provides that a change of company type does not:
 create a new legal entity
 affect the company’s existing property, rights or obligations
 cause any existing legal proceedings by or against the company or its members to be defective.
However, a change in company type may result in different reporting requirements.
For a conversion from a company limited by guarantee to a company limited by shares, under s 166(2):
 the liability of present and past members as guarantors is extinguished
 the members of the company limited by guarantee are no longer members of that company
 if shares are to issued then the persons to whom shares are issued become shareholders of the
company limited by shares.
8
HOLDING AND SUBSIDIARY COMPANIES
8.1
Definition of holding company
The effect of the s 9 definition of ‘holding company’ is: ‘holding company’, in relation to Company A,
means a company (that is, the holding company) of which Company A is a subsidiary. This definition
requires analysis of the meaning of ‘subsidiary’.
Section 9 defines an ‘ultimate holding company’ to be a holding company that itself is not a
subsidiary of any other company.
8.2
Meaning of a subsidiary company
Under s 46, a company is a subsidiary of another company (the holding company) if the holding company:
 controls the composition of the subsidiary’s board; or
 is in a position to cast, or control the casting of, more than one-half of the maximum number of
votes that might be cast at a general meeting of the subsidiary; or
 holds more than one-half of the issued share capital of the subsidiary.
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Section 47 provides that, without limiting the circumstances in which the composition of a company’s
board is taken to be controlled by another company, the composition of the board is taken to be controlled
by another company if the other company can appoint or remove all, or the majority of the directors of the
subsidiary.
Section 50AA(1) provides that an entity controls a second entity if the first entity has the capacity to
determine the outcome of decisions about the second entity’s financial and operating policies. A company
is an entity under the s 9 definition of ‘entity’. To determine whether the first entity has this capacity, s
50AA(2) requires that:
 the practical influence the first entity can exert (rather than the rights it can enforce) is the issue
to be considered; and
 any practice or pattern of behaviour affecting the second entity’s financial or operating policies is
to be taken into account.
9
REGISTRABLE AUSTRALIAN BODIES
A registrable Australian body includes a body corporate that is:
 not a registered company or a corporation sole; or
 an unincorporated body that, in the name of its secretary or other officer appointed for the
purpose, may sue or be sued or may hold property (s 9).
and excludes foreign companies (s 9).
Examples: a non-bank financial institution; incorporated non-profit associations.
Section 601CA prevents a registrable Australian body from carrying on business in a State or Territory
other than the one in which it was registered. To open a branch in another State or Territory the institution
must make an application to ASIC for registration under s 601CB. Upon registration by ASIC under the
Corporations Act 2001, that institution becomes a ‘registered Australian body’ (s 9) and can trade across
Australia (but becomes subject to regulation by ASIC and all of the statutory requirements of the
Corporations Act 2001).
10
FOREIGN COMPANIES
Under s 9, a foreign company means either a body corporate formed outside Australia or an
unincorporated body formed outside Australia that does not have its head office or principal place of
business in Australia.
Section 601CD prevents a foreign company from carrying on business in Australia unless it becomes a
‘registered foreign company’ under s 601CE.
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DIFFERENT BUSINESS STRUCTURES
11.1 Sole traders
A sole trader is an individual who owns and manages their own business for the purposes of making a
profit (also known as sole proprietorship). The sole trader owns and controls the business, but may
engage employees and independent contractors to assist in the operation of the business.
Set-up and running costs associated with operating as sole trader are low. Except for compliance with
necessary individual registration and professional requirements, and apart from the relevant Business
Names Act of each State and Territory, there is no specific legislation covering the formation and
operation of a business as a sole trader. Registration of a name as a business name will be required where
an individual uses a trading name other than their own name. A registered business name must be
displayed at every place of business and must be printed on any business stationery. General statutory
requirements such as taxation, occupational health and safety and workers’ compensation must be
complied with. Any legal liability as a debtor or otherwise which arose while operating as a sole trader
remains after ceasing operations. The death of a sole trader will bring the business to an end.
The sole trader assumes responsibility for management of the business, and has total control (but may seek
outside advice – at a price) and receives all of the profit. All of the income must be taken into account for
the purposes of the sole trader’s tax liability, with no scope for income-splitting.
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The main disadvantage of sole proprietorship is unlimited liability.
11.2 Partnerships
Each State and Territory in Australia has a Partnership Act that defines a partnership as the relationship
which exists between parties carrying on a business in common with a view to making a profit. A
partnership must consist of at least two persons, with the maximum number being 20: s 115. Exceptions to
this requirement include solicitors and accountants (up to 400 partners), architects (up to 100 partners)
and doctors (up to 50 partners).
Partnerships are a common form of business structure suited to domestic situations, small business
operations and professionals.
A partnership is a contractual agreement formed orally, in writing or by conduct. The conduct of persons
may therefore legally amount to the existence of a partnership if the necessary elements are present: the
carrying on of a business; in common; with a view to making a profit. In determining whether these
elements are satisfied, the intention of the parties, the sharing of profits and losses, and participation in
management are taken into account.
The requirement that there be a carrying on of a business involves repetition of business activity.
Generally, a one-off business project involving more than one person would not be a partnership but
would be a joint venture.
Set-up and running costs associated with operating as a partnership are low. This is similar to sole
proprietorships. A partnership does not have to be registered and there is no requirement to have a written
partnership agreement. The Partnership Acts do, however, contain rules to assist in determining whether a
partnership exists and to determine partners’ liability. Subject to any agreement between the partners, the
Acts also deal with the relationship of partners to one another, the dissolution of a partnership and the
subsequent distribution of partnership assets.
The formation of a partnership enables the splitting of partnership income between the partners resulting
in a reduction in tax liability. Partnership tax losses can also be offset against a partner’s personal income
from other sources. With partnerships, in addition to lodging a partnership tax return, an individual
partner’s share of income must be included in that partner’s personal tax return. Partners are then liable
for their share of any tax payable on the partnership income.
Each partner has unlimited liability. Partners are jointly (collectively) liable for contractual debts and
severally (individually) liable in tort (for example, negligence). Limited liability in companies is the main
incentive for changing the business structure from a partnership to a company.
Profit must be shared in accordance with the partnership agreement. Where there is no agreement, the
Partnership Acts provide that profit must be shared equally. An advantage, however, is that losses are also
shared in this way.
As a partnership is not a separate legal entity, it does not exist independently from its partners. A
partnership is technically dissolved whenever an existing partner leaves or a new partner joins. However,
partnership agreements often provide for these circumstances so that the partnership effectively continues
to exist despite changes to the partners.
It may be difficult for a partner to sell their interest in the partnership unless this is contemplated by the
partnership agreement or unless all the other partners agree to the sale. As each partner is an agent of the
other partners and of the firm when acting in the usual course of partnership business, circumstances may
arise where a partner exceeds their actual authority but still binds the other partners due to that partner
acting within apparent or ostensible authority.
11.3 Joint ventures
The basis of a joint venture is the law of contract. A joint venture is a contractual agreement between two
or more parties to undertake some commercial activity of a one-off nature. The parties here may be
individuals, partnerships, companies or a combination of these groups. Typically, joint ventures are
formed to undertake a one-off projects.
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There is no State or Territory legislation specifically governing joint ventures. The fundamental difference
between a partnership and a joint venture is that the joint venture involves a one-off project. In Canny
Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321;
(1974) 3 ALR 409, the High Court held that the relevant relationship was a partnership rather than a joint
venture (even though the contract named the relationship a “joint venture”), because
 the commercial enterprise was entered into with a view to make a profit;
 the parties agreed to share profits;
 differences would be settled by arbitration;
 both parties were concerned with each other’s financial stability.
The entire basis of a joint venture arrangement should be specifically set out in the contract forming the
enterprise. Any disputes would then be settled on the basis of the principles of the law of contract.
Normally, each joint venture party retains ownership of their individual assets. In other words, their assets
do not from part of a pool of assets owned by the joint venture. As the joint venture is not a separate legal
entity, each joint venture party is liable to the parties they deal with outside the joint venture agreement.
11.4 Companies
A company comes into existence as a body corporate upon registration by ASIC under s 119.
It is a separate legal entity with the capacity of an individual (s 124). Limited shareholder liability
provides further incentive for shareholders and directors. (Creditors may, however, demand personal
guarantees). Changes in the shareholders of a small company do not result in the dissolution of the
business. Company tax is payable. The dividend imputation system prevents double taxation of company
income by imputing or attributing tax credits to shareholders in respect of tax payable by the company.
ASIC fees mean additional costs.
Public companies and large proprietary companies must also lodge with ASIC annual financial reports (a
profit and loss statement, a balance sheet and a statement of cash flows), an auditor’s report and a
directors’ report (about the company’s operations and performance, dividends paid or recommended etc.).
Small proprietary companies are only required to lodge these reports if directed to do so by either ASIC or
shareholders with at least 5 per cent of the votes in the company.
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