The essential Corporate Law in Australia

These are the highlights if you want to know more about the essential Corporate Law in Australia. This entry was drafted by Ettiene Lawyers. Link to e-IURE Network.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case Ettiene Lawyers is an excellent option in Australia.

 

Regulations

 

The incorporation and regulation of corporations is governed by:

  • The Corporations Act 2001 (Commonwealth);
  • the common law; and
  • legislation dealing with specific issues including restrictive trade practices, consumer protection, employment practices, occupational health and safety, taxation and foreign investment.

 

Types of Companies

 

Of the common forms of trading corporations there are:

  • Publicly listed corporations which are also regulated by the Australian Securities Exchange Ltd (ASX) listing rules;
  • Public corporations that choose not to list on the ASX; and
  • Proprietary limited corporations.

The difference between the corporations is summarized in the table below:

 

                Type          IssuePublicly ListedPublic Not ListedProprietary Corporation
Minimum Number of Directors331
Minimum Number of Shareholders111
Maximum Number of ShareholdersNoneNone50
Minimum Number of Company Secretaries11Secretary Optional
Ability to raise capital from the publicYesYesNo
AuditorMust be appointedMust be appointedOptional
Must Comply with ASX Listing RulesYes (Requirement of ASX Listing Rules)NoNo
Independent DirectorsYes (Requirement of ASX Listing Rules)OptionalOptional

 

 

Liability of Shareholders

 

The liability of shareholders of the above types of company is limited in each instance to the amount paid or agreed to be paid on the shares allotted to the shareholder.

 

Share Capital

 

Companies in Australia are not required to have a minimum amount of paid-up capital.

The concept of par values for shares has been removed under the Corporations Act 2001.

Classes of shares

Shares can be issued as order, preferred or bearer shares.

 

Corporate Governance

 

Shareholders Meetings:

Decisions reserved to the Shareholders

 

Powers reserved

To Shareholders

Publicly ListedPublic Not ListedProprietary Corporation
Increasing Share capitalYesGenerally Yes but depends on ConstitutionGenerally Yes but depends on Constitution and any Shareholders Agreement
Changing the Corporate purposeNoNoNo
Reducing share capitalUp to a point, No, but once the point is reached shareholder approval is requiredUp to a point, No, but once the point is reached shareholder approval is requiredUp to a point, No, but once the point is reached shareholder approval is required
Change of NameYesYesYes
Authority to Bind companyNoNoNo
Authority to Bind or require directors to act in a particular manner or refrain from actingNoNoNo
Right to remove directorsYesYesYes
Right to transfer shares to third partiesYesYesOnly with approval of the board of directors and (also) usually the other shareholders
Change of ConstitutionYesYesYes

 

Minimum number of shareholders meetings/year

Public companies must convene one shareholders meeting every year.

Proprietary companies may have shareholders meetings as and when required; there is no minimum number to be held in any year.

A Director may request convening a shareholders meeting.

Shareholders may request the board to convene a shareholders meeting and if the minimum number of shareholders so request a meeting must be convened.

Directors:

Appointment of Directors: Directors are appointed by the votes of shareholders.

Powers of Directors: Generally the power of day-to-day control of the company vests in the directors. The directors’ power is absolute; save for the right of shareholders to remove directors who they think are not acting in the best interest of the company.

Minimum number of independent Directors: At least one.

Term of appointment: No statutory term, depends on the Constitution of the Companies. Shareholders have reserved powers to seek to remove directors at any time provided certain requirements under the law are met.

Requirements concerning directors’ fees: Listed Public Companies must disclose the remuneration paid to directors. Other companies do not have to disclose and generally never disclose the remuneration paid to directors.

Directors’ liability: Directors can be personally liable for the debts of companies if they allow the company to incur a debt, the company is liquidated and the court determines that the directors knew or ought reasonably to have known that the company was insolvent at the time the debt was incurred. In serious situations directors can be jailed for this offence.

 

Annual Accounting Procedures

 

Necessary Documents

The Corporations Act 2001 does not specify what documents or information if any a company must have. Directors are under a general duty to ensure that the financial accounts of the company are true and correct at all times.

Deadline for delivery of documents

Public companies must file annual returns with copies of accounts within 6 months of the end of the company’s financial year. The financial year in Australia is from 1 July each year to the following 30th June. Most listed public companies have to file and hold shareholders meetings by 31 December each year. Some companies have different financial years, as subsidiaries of foreign corporations whose year-end is different than that in Australia. Permission to have a different year-end for a company’s financial year must be give by the Australian Taxation Office.

Statutory Audit

Scope: Public companies must be audited each financial year. The Auditor must report to the shareholders and to the Australian Securities and Investment Commission if any accounting irregularities are uncovered.

 

Competence: Auditors must be registered. An Auditor once appointed cannot be removed by the company. An Auditor may resign but cannot be removed without the approval of shareholders and then only upon the appointment of a replacement auditor.

 

Other Investment Structures

 

Besides the use of corporations as investment vehicles overseas investors can choose from other forms of investment vehicles. Below is a table of the forms of alternate investment vehicles. The choice of investment vehicle will be dependent upon tax, control and risk return considerations.

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