PRBL004 - - Lecture 1.ppt

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1 1 PRBL004 Lecture 1 – Introduction to Corporations Law Jeswynn Yogaratnam Room: 39.3.72; Yellow 1 (3rd flr) Telephone: (08) 8946 6085 Email: [email protected] 2 At the Outset Passing rates Regular attendance Books Exam focused Communication is KEY! Teamwork (peer assessed) 3 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

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