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					Corporate Governance

       Week 2




       Rekha Goyal     1
          Learning Outcomes
•   Overview of the Corporations Act
•   Characteristics of Companies
•   The Corporate Veil
•   Types of Companies
•   Incorporating a Company
•   Constitution and Replaceable Rules
•   Classes of Shares
•   Annual Statement and Solvency Resolution
•   Research

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Overview of Corporations Law


• The main statute regulating Companies in
  Australia is the Corporations Act 2001




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  History of the Corporations Act


• The Corporations Act is the most recent in a
  series of statutes governing companies.
• It contains laws to govern all companies,
  large and small.



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          Company Statistics
Some statistics:
1. There are over I million companies registered in
   Australia.
2. The vast majority of them are limited by shares.
3. Ninety Five percent of companies are classified
   by the Tax Office as “small businesses”.
4. There are approximately 1,300 companies listed
   on the ASX.

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 Purpose of Corporations Law
Company Law:
• Provides for the formation & ultimately
  termination of companies.
• Regulates the relationship between
  participants in companies e.g. the
  relationship between directors and
  shareholders; and
• Facilitates dealings between companies and
  outsiders.
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    CHARACTERISTICS OF
        COMPANIES
• Artificial legal person
• Can sue and be sued in its own name
• Perpetual succession
• Can hold and dispose of property
• A company may choose to have a
  common seal
• Separate legal entity – it exists
  separately from its members
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     CHARACTERISTICS OF
      COMPANIES contd..
• Contract with its controlling participants –
  Lee V Lee Air Farming Ltd




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   THE CORPORATE VEIL
• Corporate Veil - A company is a
  separate legal entity and is separate
  from its participants.
• Veil of incorporation
• Lifting the veil of incorporation
   –At common law
   –Under the Corporations Law        9
                Rekha Goyal
    Lifting the Corporate Veil
             contd….
• The Case Law (Courts) and Statute Law
  (Corporations Law) will „lift‟ the veil if the
  company has been used for :
  – Fraud
  – Avoid legal / tax obligations
  – Contributing to a breach of directors duty



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     Lifting the Corporate Veil
              contd….
• Examples of lifting the corporate veil under common law:

Green V Bestobell Industries Ltd (1982)- The gain of a family
  company registered for the purpose of aiding a company
  officer to breach their duty belonged to the company

Gilford Motor Co Ltd V Horne (1933) – a breach of contract
  by a person could not be hidden behind a company
  registered for that purpose.



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       TYPES OF COMPANIES
•   Most common type – companies
    limited by shares
•   No Liability companies (mining
    companies only)
•   Public v Private companies
•   Holding and subsidiary companies
    – related bodies corporate
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 Types of Companies contd….
• Small and large proprietary companies – Small
  if
  – Consolidated Gross operating revenue for the
    financial year of the company is less than $10 m

  – Consolidated Gross assets at the end of financial
    year is less than $ 5 m

  – Fewer than 50 employee
  Large proprietary company is one which does not
    satisfy atleast two of the above three criteria

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     INCORPORATING A
         COMPANY
• Lodgement of application with
  ASIC
• ACN (Australian Company
  Number)
• Post-incorporation requirements

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    CONSTITUTION AND
   REPLACEABLE RULES
• For companies formed prior to 1
  July 1998:
  – Retain their Memorandum and
    Articles;
  – Adopt the Replaceable Rules; or
  – Chose combination of both
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   CONSTITUTION AND
  REPLACEABLE RULES
• For companies formed from 1
  July 1998:
 – Can adopt replaceable rules in
   Corporations law;
 – Draft their own Constitution; or
 – Have combination of both
              Rekha Goyal             16
       LEGAL EFFECT OF
      CONSTITUTION & RR
• Have the effect as a contract between:
   – The company and each member; – S 140(1)(a) - The
     company may enforce the statutory contract against
     the individual members.
    Hickman V Kent or Romney Marsh Sheep Breeders
     Association
   – The company and each director and company
     secretary: S 140(1)(b) can only be enforced if the
     breach affects an officer in their capacity as director
   – A member and each other member – s140(1)(c)



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MEMBERSHIP AND SHARE
      CAPITAL
• When does a person become a ‘member’ of a
  company?
• Share certificates – prima facie evidence of a
  member’s title to shares
• Register of members –is a database of
  information and will disclose valuable
  information to members, creditors and others.
  Section 168 every company must keep a
  register of members.
  - Name, Address, Date, Share classes, Share
  alloted, share certificate Numbers, amount paid
  up                                             18
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    CLASSES OF SHARES

• Ordinary shares
• Preference shares
  – Cumulative preference
  – Non-cumulative preference
  – Participating
  – Non-participating
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OTHER TYPES OF SHARES


• Employee shares
• Deferred shares



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  ANNUAL STATEMENTS


• Annual Returns abolished on 1
  July 2003
• Companies sent an Annual
  Statement on review date

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   ANNUAL STATEMENTS
• Information contained:
   – Registered office
   – Principal place of business
   – Ultimate holding company
   – Office holders
   – Company share structure
   – Members
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   ANNUAL STATEMENTS
• If information is incorrect:
   – Lodge changes within 28 days or
     late review fee charged (Form 484)
• If information is correct:
   – No documents need to be lodged
• The annual review fee must be paid
  within 2 months of the annual review
  date                                23
                Rekha Goyal
 SOLVENCY RESOLUTION

• Company directors must pass a
  solvency resolution within 2
  months of their review date unless
  the company lodged its financial
  statements and Directors Report in
  the 12 months before the review
  date.
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              TYPES

• Positive solvency resolution:
Passed when the directors have
reason to believe that the
company will be able to pay its debts
as and when they become due and
payable
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              TYPES

• Negative solvency resolution:
Passed when directors have reason
to believe that the company will not
be able to pay its debts as and when
they become due and payable

               Rekha Goyal         26
         WHAT TO DO

• Negative solvency resolution:
  – Lodge Form 485 within 7 days
    after the resolution is passed
• Positive solvency resolution:
  – No requirement to notify ASIC,
    only requirement is to pay review
    fee
               Rekha Goyal              27
Thank You




  Rekha Goyal   28

				
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