PRBL004 - - Lecture 1.ppt
Transcript of PRBL004 - - Lecture 1.ppt
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PRBL004Lecture 1 –Introduction to Corporations Law
Jeswynn Yogaratnam
Room: 39.3.72; Yellow 1 (3rd flr)Telephone: (08) 8946 6085Email: [email protected]
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At the Outset
Passing rates
Regular attendance
Books
Exam focused
Communication is KEY!
Teamwork (peer assessed)
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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 lawin 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
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Assessment
Assignment 1 – Mini research paper and presentation on a Corporate Debacle (35%)
Assignment 2 – Case study and problem solving (15%)
Seminar - 10%
Exam – Take home exam (40%)
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Lecture 1
Brief history
What is corporations law and where do you find it?
Types of business structures
Basic characteristics of a company
Comparison with partnerships and other structures
Registering/incorporating a company
ASIC and its role
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What is corporate law?
Generally, it is the regulation of companies from creation to dissolution and their dealings internally and externally
Emphasis of this course is the registered company
Mostly regulated by the Corporations Act 2001 (Cth) (“CA”)
Also: Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”)
Common law (case law) rules
Judicial interpretation of CA (=common law)
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What is a company?
“Companies are abstract, artificial entities recognised by the law as legal persons with rights and liabilities separate from their members or shareholders.” Lipton & Herzberg (24):
� “abstract”� “artificial”� “legal person with rights and liabilities”
= Legal Fiction
[Note: in Australia a company is registered and sometimes is referred to as a corporation]
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Distinguish corporate & non corporate
Depends on size, profit motives, taxation treatment, liability, ease and expense of a set-up
Corporate forms of association are dealt with under the Corporations Act 2001 (and related regulations)
Non corporate by common law and / or other legislation
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Non “Corporate” forms of business association
Sole trader
Partnership
Unincorporated association
Trust
Joint venture
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Corporate forms of business association
Corporation = name given to the entity that is incorporated under the CA
It usually is a company
CA allows for incorporation of other entities such as sports associations
Outsize partnerships
***Company and corporation are usually terms used
interchangeably****
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Corporations formed by Registration
1. Incorporated association:
Part 3 Associations Act NT (similar legislation in other states) Not for profit
Example : Darwin Sailing Club made up of several associations:Cruising Yacht Association of the NT (CYANT)Multihull Association of the NT (MANTA)Under Thirty Yacht Association (UTYA)Tasar Association of the NTLaser Association of the NT
Wise v Perpetual Trustee Co Ltd [1903] AC 139
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2. Registered Companies (focus in this unit):
registered under the CAseveral types of company can be registeredclassified according to their size, liability of members, public status
Liability of members:(a) Limited company(b) Unlimited company
Public Status:(a) Public (listed on ASX)(b) Private (Pty)
Size:(a) Large Pty(b) Small Pty
Corporations formed by Registration
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S 9 CA:
"limited company" means:
(a) a company limited by shares; or
(b) a company limited by guarantee; or
(c) a company limited both by shares and guarantee;
but does not include a no liability company
Corporations formed by Registration –Registered Companies: Liability of members – Limited Company
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Most common form
Must have “Ltd” or “Limited” in name
S 516 CA: if company wound up each shareholder/member is only liable for any amount that is unpaid (if any) on their shares
eg S paid $1.20 for 1,000 shares then liable for $1,200
if paid upfront - nothing unpaid -they don’t owe anything
If only paid $1 ea. up front- liable $200
Corporations formed by Registration –Registered Companies: Liability of members – Limited by Shares
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Most commonly set-up for charitable purposes/not-for-profit org.
S 517 CA : member not required to contribute any capital unless and until there is a shortfall when a company is wound up
Subject to s 518 CA : where a company limited by both shares and guarantee liable for aggregate of unpaid share capital and the full amount they guaranteed.
(subject to s 519 – please read)
Corporations formed by Registration –Registered Companies: Liability of members – Limited by Guarantee
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Must be a Public Co. and required to have “NL” in name
S 112 (2) CA :A company may be registered as a no liability company only if:
(a) the company has a share capital; and (b) the company's constitution states that its sole objects are mining
purposes; and (c) the company has no contractual right under its constitution to
recover calls made on its shares from a shareholder who fails to pay them.
S9:
"mining purposes" means any or all of the following purposes: (a) prospecting for ores, metals or minerals; (b) obtaining, by any mode or method, ores, metals or minerals; (c) the sale or other disposal of ores, metals, minerals or other
products of mining; (d) the carrying on of any business or activity necessary for, or
incidental to, any of the foregoing purposes; whether in Australia or elsewhere, but does not include quarrying operations for the sole purpose of obtaining stone for building, roadmaking or similar purposes.
Corporations formed by Registration –Registered Companies: Liability of members – No Liability Company
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S 9: no limit to the shareholder’s liability"unlimited company" means a company whose members have no limit placed on their liability
liability of the member is not limited to the share price
single member could be liable for the entire shortfall if other members cannot pay
Resemble partnerships
Corporations formed by Registration –Registered Companies: Liability of members – Unlimited Company
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Listed or not listed
If listed- ASX Listing Rules
S 9 CA defines Public Company to be something other than a proprietary company
S 9 CA states that a proprietary company is defined by s 45A (1)
Corporations formed by Registration –Registered Companies: Company Status – Public Companies
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Listed: Shareholder requirements (ASX Listing rules)500 shareholders each holding parcel of shares worth at least $2000; or 400 shareholders each holding a parcel of shares worth at least $2000 25% of which unrelated parties of the company
Listed: Size requirement:profit test: last 3 financial years aggregate $1Mor assets test: net tangible assets $2M
Disclosing entities- defined in Pt 1.2A of the Corporations Regulations 2001
Enhanced disclosure scheme means periodic reporting and continuous disclosure
Corporations formed by Registration –Registered Companies: Company Status – Public Companies
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s 45A (1) states that a proprietary company is a company that is registered or converts to a proprietary company under the CA
In addition:
� s 112- must be limited by shares or be an unlimited company with share capital
� s 113 - have no more than 50 non employeeshareholders
� have different disclosure requirements depending on whether large or small Pty Co – s 45A(2) and Part 2M.3
Corporations formed by Registration –Registered Companies: Company Status – Proprietary Companies
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Small: s 45 A (2)
if in a financial year it satisfies 2 of the following:
the consolidated gross operating revenue for the company and any entities it controls for the financial year is less than $25M
the value of the consolidated gross assets of the company and the entities it controls is less than $12.5M
at the end of the year the company and the entities it controls have fewer than 50 employees
Generally reduced reporting requirements (see ss 292- 294)
Large : s 45 A (3) greater than $25M, greater than $12.5M, greater than 50 employees…
See s 292 for reporting requirements
Corporations formed by Registration –Registered Companies: Company Status – Proprietary Companies
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Big v Small
FunctionMembershipReplaceable Rules / ConstitutionDirectorsSecretaryFundraisingAGMAuditorsRegistered office
Tutorial discussion - Prepare the distinction between public and private co’s based on the above points
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Other “companies” terminologySubsidiary and Holding Co
Holding Co. controls or holds majority of shares in a subsidiaryDefinition s 46(a), s 47 CA Other sections relating to subsidiaries: s260A (financial assistance), s 588V –X (insolvent trading), s 202B (remuneration disclosure)
Related bodies corporate – s 50 CAholding company of another body corporatesubsidiarysubsidiary of a holding company of another body corporate
Associate – see s 50AAABeyond the scope of this course
Shelf CompanyCan be sold to a person who wants an already incorporated company
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Non corporate forms of association
PartnershipsPartnership Act – state based
S 5 NT Act:
(1) 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.
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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 bankruptcyof one of the partners- unless the partnership agreement stipulates otherwise
fiduciary relationship between partners
Smith v Anderson [1880] 15 ChD 247
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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
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
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Non corporate forms of association (cont)
Partnerships (cont)
Liability of partners
S13 Partnership Act NT :
Each partner in a firm other than an incorporatedlimited 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 partnerhave been satisfied.
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Non corporate forms of association (cont)
Partnerships (cont)
Liability for loss or injury s 14:
A firm other than an incorporated limited partnership is liable to the same extent as a partner in the firm for any loss, injury or penalty caused by an act (including omission) of the partner if:
(a) the act occurred while the partner was acting in the ordinary course of the firm's
business or with the authority of the other partners; and
(b) for a loss or injury - the loss or injury is not suffered by a partner in the firm.
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Non corporate forms of association (cont)
Size of partnerships
S115 CA
Max number of partners is 20
The Corporations Regulations may (under s 115 (2)) specify a different amount
For lawyers it is 400, for accountants it is 1000- Corps Regs reg 2A.1.01:
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Non corporate forms of business associations
Sole Trader
ABN – Australian business number
register for GST
if business name different from the name of person- register the business name at NT Dept Justice- Office of Consumer and Business Affairs
http://www.nt.gov.au/justice/graphpages/cba/business/register_business_name.shtml
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
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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
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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
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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
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Compare corporate with non corporateCompare company with partnership
Nature of the business structure
Liability of members
Company- limited liability v partnership – unlimited
Legal regulation
Company- greater complexity and formality v sole trader less formality and regulation
Set up
Sole trader- less v company- costly
Tutorial discussion – prepare and discuss points of comparison between corporate and non corporate entities
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Registering a companyS117 application Form 201 (ASIC website)
Name – available name or CAN ss 147- 156-A name can be reserved with form 410 (ASIC website)**don’t forget the name must reflect its status eg PTY LTD
Directors, secretaries, company officers, members ss 114,120, ss 201A –D, ss 204A –D
S 121 registered office
S118 registration is carried out after application under s 117 and fee is paid
S119 company comes into existence upon registration
S118 (1) (a) ACN allocated
S118 (1) (c) certificate of registration and ACN issue
S 123 and S 124 - company seal or signing on behalf
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ASIC
Australian Securities and Investments Commission
Australian Securities and Investments Act 2001 (ASIC Act)
www.asic.gov.au
ROLE:responsible for administering the Corporations Act 2001
consumer protection (FIDO website) and market integrity aspects of Insurance and superannuation legislation
enforces and regulates company and financial services laws to protect consumers, investors and creditors.
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ASICOBJECTIVES of ASIC
S 1 (2) ASIC Actto maintain, improve etc performance of the financial industry ..in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy
Promote the confident and informed participation of investors and consumers in the financial system
Administer efficiently the laws that confer functions and powers on ASIC
Receive, process and store information given to it under the laws that confer functions and powers on it
Ensure information is publicly available
Take whatever action it can take to enforce and give effect to the laws that confer functions on it
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ASICFUNCTIONS
S 11 ASIC Act
Has functions conferred on it by the CA
Has additional functions set out in s 11 (2) – (9) ASIC Act –administrative, advisory functions
S 12A ASIC Act functions : to administer other Acts (apart from ASIC and CA):
Insurance Contracts Act 1984
Superannuation (Resolution of Complaints) Act 1993
Superannuation Industry (Supervision) Act 1993
Retirement Savings Accounts Act 1997
Life Insurance Act 1995
Medical Indemnity (Prudential Supervision and Product Standards) Act 2003.
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ASICCan register companies
Can find out about other companies – public information-on the ASIC databases (eg ASCOT)
regulation of financial services market
Takeovers regulation
Powers of investigation s 13- wide investigatory and information gathering powers where it suspects there has been a breach of the corporations law
- eg s 19 ASIC Act
Powers to bring legal proceedings- civil proceedings or refer criminal to the Cth DPP
Consumer protection: Fido website
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Registering a Company
ASIC website:How to register a company
Step 1: Decide on your business structure
Step 2: Choose a company name
Step 3: Determine if you will operate under replaceable
rules or a constitution or a combination of both
Step 4: Obtain consents - member(s), director(s) and secretary(secretaries)
Step 5: Complete and lodge the application form
Step 6 (optional): Get a commemorative record of registration
Step 7: Get to know your legal obligationsMore company information
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Movie time:http://www.youtube.com/watch?v=Pin8fbdGV9Y
http://www.youtube.com/watch?v=8SuUzmqBewg&feature=related
http://www.youtube.com/watch?v=wkygXc9IM5U&feature=related
Tutorials:Please refer to tutorial section on LearnlineRemember to research on corporate scandals for Assignment 1eg. of an international scandal -http://www.youtube.com/watch?v=kClcO9yBmgg