|Publisher:||Globe Law And Business|
|Edition description:||Third Edition|
|Product dimensions:||6.20(w) x 9.50(h) x 2.80(d)|
Read an Excerpt
A Practical Global Guide Volume I
By Agustín Jausàs
Globe Law and Business LtdCopyright © 2014 Globe Business Publishing Ltd
All rights reserved.
Frederick John Chilton Andrew Nicholas Egri Emil Ford Lawyers
1. Types of company with limited liability and applicable legislation
Companies in Australia are governed by the Corporations Act 2001 (Cth), which is a federal act. The following types of limited liability company may be registered under the act:
proprietary company limited by shares;
public company limited by shares;
public company limited by guarantee; and
public company with no liability.
Trading companies, whether proprietary or public, are generally limited by shares. In such companies, the liability of the members is limited to the amount, if any, unpaid on their respective shareholdings. Proprietary companies are the most common type of company, as they are not subject to some of the more onerous financial reporting requirements applicable to public companies (see section 11).
A proprietary company is a company that has no more than 50 non-employee shareholders and cannot engage in any activity involving public offers of its securities. If a proprietary company attempts to lodge a prospectus or exceeds 50 members, the Australian Securities and Investments Commission (ASIC) has the power to convert it to a public company. Only public companies can raise capital from the public or operate a registered managed investment scheme.
A company limited by guarantee is a company in which the members do not hold shares, but each member agrees to contribute an amount specified in the company's constitution in the event that the company is unable to meet its liabilities. This amount can be nominal. The amount guaranteed cannot be changed, nor can it be regarded as an asset of the company to be borrowed against. Non-profit and charitable organisations are generally registered as companies limited by guarantee. The advantage of incorporating as a company limited by guarantee over any other form of company is that members are not required to make capital contributions when the company is established. Companies limited by guarantee are unable to issue shares and instead can raise funds by way of grants, annual membership fees, donations and borrowing.
A company with no liability is a company which has a share capital and is unable to recover any amount unpaid on shares held by its members, and whose constitution states that its sole objects are mining purposes. This type of company is relatively uncommon.
2. Incorporation procedure
2.1 Proceedings prior to incorporation
(a) Name registration
Unless the name of the proposed company is to be its Australian company number (ACN), the proposed name of the company must be provided in the application for registration. A company may reserve a proposed name prior to incorporation, with such reservation lasting for two months from the lodgement date.
(b) Capital contributions
Australia no longer has a system of par value for shares. The value of equity contributed in cash or in kind can now be reflected in any number of shares. However, it is normal to provide equity in cash.
(c) Declaration of foreign investment
Generally, there is no requirement for a declaration of foreign investment other than the need to specify the name and address of each shareholder in the application for registration submitted to ASIC.
However, the Corporations Act does require disclosure of information about the ownership of shares held in listed public companies if a foreign company has a substantial holding in the listed company. The term 'substantial holding' is defined to mean 5% of the total votes attached to the voting shares in a company. This is measured by both the foreign company's direct interest and the interests held by its associates.
Further, under the Foreign Acquisition and Takeovers Act 1974 (Cth), new investments over a specific size, by foreign governments or in certain industries, such as banking, civil aviation, shipping, airports, media and telecommunications, must be approved by the Australian treasurer, as advised by the Foreign Investment Review Board.
(d) Tax identification number for shareholders/directors
Shareholders are required to provide the company with their Australian business number or tax file number if they wish to take advantage of the dividend imputation provisions. These allow the company to avoid withholding tax on dividends.
The internal workings of companies are now governed by a constitution. If a company does not adopt a constitution, then various replaceable rules set out in the Corporations Act will apply. However, the replaceable rules do not apply to proprietary companies where the same person is both the sole director and sole shareholder of the company.
A constitution is mandatory only for a company with no liability, a company limited by guarantee that wishes to be exempt from the requirement to include the word 'Limited' in its name or a 'special purpose company' that wishes to obtain the reduced annual review fee under the Corporations (Review Fees) Regulations 2003.
(b) Documents to be lodged
A public company must lodge a copy of its constitution. A proprietary company which adopts a constitution does not need to lodge a copy of the constitution with its application for registration, but the constitution must be kept with the company's records and made available if required. Each named member in the application must agree in writing to the terms of the constitution.
(c) Tax identification number
Once a company is incorporated it can apply to the commissioner of taxation for an Australian business number, which also enables registration for goods and services tax (GST). The Australian business number also functions as a tax file number.
(d) Indirect taxes, incorporation fees
Companies must file a monthly, quarterly or annual business activity statement detailing GST received and GST paid, which may be claimed as an input tax. Any excess of receipts over deductions is payable to the Australian Taxation Office with the company's submission of its business activity statement.
Wholly owned subsidiaries can be established for less than A$2,000, including legal professional fees and ASIC filing fees. No government taxes are levied on incorporation.
Any person, whether natural or legal, may apply for the registration of a company. The applicant need not be a person who is to be a member or officer of the company. If the applicant is a corporation, at least one director or secretary of that corporation must sign the application.
The application for registration must be in the prescribed form (ie, ASIC Form 201 (see Appendix 1 to this chapter)). The form requires the following statement of matters:
The type of company that is proposed to be registered must be identified.
The proposed company name must be provided, unless its name will simply be its ACN.
The state or territory in which the company is to be registered must be nominated. This can be relevant to the payment of stamp duty on share transfers which still applies in some states, such as New South Wales.
The address of the proposed registered office must be provided. If the company does not occupy the premises at this address, an occupier's consent letter must be obtained from the occupier. For public companies, the proposed opening hours of the registered office must be provided. The address of the proposed principal place of business must also be supplied, if it is different from the address of the proposed registered office.
The application must set out the full present and former names, dates and places of birth and residential addresses of each director and secretary. A proprietary company must have at least one director, and at least one director must ordinarily reside in Australia. A proprietary company need not have a secretary, but if it does then at least one secretary must ordinarily reside in Australia. A public company must have at least three directors and at least two directors must ordinarily reside in Australia. A public company must also have at least one secretary and at least one secretary must ordinarily reside in Australia.
The full name and address of each proposed member must be provided.
The application must provide details of the share structure of the proposed company. If the proposed company is to be a company limited by guarantee, the amount of each member's guarantee must be provided.
If the proposed company will have an ultimate holding company, the application must state the name, ACN (if applicable), and country of incorporation of the ultimate holding company.
Once an application has been lodged, ASIC may register the company and allocate an ACN. Once the company is registered, it comes into existence as a body corporate.
(f) Official books
A company must keep minute books, a register of members and a register of option holders (if any).
A company is required to record in its minute books, within one month, minutes of all general meetings and of directors' meetings, as well as resolutions passed by members and directors.
The register of members must contain:
the name and address of each member, and the date on which the member's name was entered on the register;
where the company has more than 50 members, an up-to-date index, unless the register is kept in a form that operates effectively as an index;
where the company has share capital, the date on which every allotment of shares takes place, the number of shares in each allotment, the shares held by each member, the class of shares, share numbers or share certificate numbers, the amount paid on the shares, whether the shares are fully paid and any amount unpaid on the shares; and
the date on which any person ceased to be a member during the previous seven years and the name and details of that person.
Each register should be kept at the company's registered office, an office at the principal place of business in Australia, or another office in Australia approved by ASIC.
3. Number of shareholders
There must be at least one shareholder for a company limited by shares, and a proprietary company cannot have more than 50 shareholders.
4. Corporate name – limitations
A name is generally available for registration unless it is identical to a name that has already been reserved or registered under the Corporations Act, or is identical to a name that has been listed on the national Business Names Register.
A name is also unavailable for registration if it is of a kind declared to be unacceptable under Section 147 of the Corporations Act. These include:
names that are undesirable or likely to be offensive;
names containing restricted words, as specified in the regulations (eg 'Made in Australia', 'Stock Exchange', 'Trust', 'GST' or 'RSL'); and
names which are capable of suggesting a connection with the Crown, a government or the British royal family.
A further requirement is that:
the name of every company with no liability must include the words 'No liability' or 'NL';
the name of every proprietary company must include the word 'Proprietary' or 'Pty'; and
the name of every company with limited liability must include the word 'Limited' or 'Ltd'.
However, ASIC may register a company limited by guarantee without including the word 'Limited' in its name if its constitution requires the company to pursue charitable purposes only and to apply its income in promoting those purposes. Such companies cannot make distributions to their members or pay fees to their directors.
If a company name is registered when it should not in fact have been, ASIC has the power to direct the company to change its name within two months.
5. Corporate domicile
The name of the state or territory in which the company is to be registered must be nominated upon registration. State and territory stamp duty legislation is currently undergoing significant reform. At the time of writing, no stamp duty is payable on the transfer of shares if a company is registered in Victoria, Western Australia, Queensland, Tasmania, the Australian Capital Territory or the Northern Territory (although a general exemption is available for shares quoted on a relevant exchange). This often leads to a company declaring one of those states to be its domicile.
6. Corporate purpose
The doctrine of ultra vires (ie, acting beyond the scope of one's powers) has been overruled by statute. It is normal to provide in the constitution that the company will have the powers of a natural person. However, there are some unusual circumstances in which companies have limited powers. Examples of these include cooperatives and government-owned corporations.
7. Capital stock
7.1 Minimum capital requirement
No minimum amount is required to be subscribed, although it is usual to subscribe at least A$1.
7.2 Nature of contributions
With the abolition of par value, it has now become easier to make in-kind contributions.
7.3 Partial payments
It is possible to issue partly paid shares in respect of which directors can then make calls for unpaid amounts. Shareholders will be liable for these amounts. The unpaid capital is an asset of the company and thus, in an insolvency administration, it is possible for a receiver or liquidator to recover the unpaid amounts. The exception is a company with no liability, which can be used only in the mining industry, where shareholders are not liable for the unpaid amounts. However, these shares are forfeited if shareholders do not meet a call.
Partly paid shares usually carry diminished rights. For example, the voting rights and dividend rights that would otherwise apply are usually reduced in proportion to the amount that has been paid on the shares.
7.4 Representation of shares
A company must generally issue share certificates stating the name of the company, the class of shares and the amount unpaid on the shares (if any). Such a share certificate is prima facie evidence that the person named on the certificate is entitled to the shares and has paid the amount certified to have been paid. However, shares in listed companies are generally held without share certificates due to the listing rules of the Australian Stock Exchange (ASX). Instead, holding statements are issued to keep shareholders informed of the balance of their respective holdings.
7.5 Transfer of shares
The company's constitution may impose restrictions on the transfer of shares. In fact, it is normal for proprietary companies to provide their directors with absolute discretion to refuse to register a transfer of shares. However, if a company is listed on the ASX, it is prevented from imposing any restrictions on the transfer of fully paid shares.
The Corporations Act and the ASX Listing Rules provide for restrictions in certain circumstances. The Act provides that a transfer of shares while a company is under administration or after it commences winding-up is void. For listed companies or unlisted companies with more than 50 shareholders, a person must not acquire a relevant interest in issued voting shares if that person's or another person's voting power would increase to more than 20%, unless the person proceeds with a takeover offer for all shares of that class. Further, under the ASX Listing Rules, the prior approval of the shareholders in general meeting is required if a listed company transfers assets or securities in excess of 5% to a related party or subsidiary, a substantial holder in the listed company or a person whose relationship to the listed company is such that the transfer should be approved by the shareholders in general meeting.
The application of the Competition and Consumer Act 2010 (Cth) and the Foreign Acquisitions and Takeovers Act 1975 (Cth) (see section 2.1(c)) should also be considered.
A transfer of shares is effective at law when a duly executed share transfer in proper form is registered and the old share certificates are handed over and new share certificates are issued. However, shares in listed companies can be transferred without delivery of share certificates, in accordance with the ASX Listing Rules.
In jurisdictions where stamp duty is still payable on transfers, a company cannot register the transfer until it has evidence of the payment of duty (usually by way of a stamp on the instrument).
8.1 Types of equity
It is possible to divide shares into different classes. Ordinary shares are the ordinary, default class of shares, and carry rights and obligations that are usual for such shares, such as the right to vote at general meetings, to receive dividends that are declared by the directors and to participate in any distributions upon the winding-up of the company. Ordinary shares may be divided into different classes (eg, A class and B class) where there are different groups of shareholders. Sometimes a non-voting class is created for employees. The rights attaching to the different classes of shares must be set out in the company's constitution.
Excerpted from Company Formation by Agustín Jausàs. Copyright © 2014 Globe Business Publishing Ltd. Excerpted by permission of Globe Law and Business Ltd.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Czech Republic, 251,