Types of Companies PDF

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Summary

This set of notes concerns classification of companies according to liability of members; the characteristics and differences between proprietary and public companies; constitution and replaceable rules and their effects...

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Week 2: Types of Companies/ Constitution Classification of companies according to liability of members -

S117(2)(a): The application for registration of a new company must state the type of company it is proposed to be registered as S112(1): There are 4 types of companies that can be registered, classified according to the extent of the liability of members: o Companies limited by shares o Companies limited by guarantee o Unlimited companies with share capital o No liability companies i.

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S9 definition: a company formed on the principle of having the liability of its members limited to the amount, if any, unpaid on the shares respectively held by them S515: a shareholder is liable to contribute to the company’s property an amount sufficient to pay the company’s debts and liabilities and costs, charges and expenses of the winding up S516: a shareholder need not contribute more than the amount, if any, unpaid on the shares in respect of which the shareholder is liable as a member S520: Past shareholders will not be liable for any debt or liability of the company S522: Past shareholders are only liable if the court is satisfied that the existing shareholders are unable to satisfy the contributions they are liable to make S148(2): a limited company must have the word ‘limited’ or ‘Ltd’ as part of its name ii.

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Companies limited by shares

Company limited by guarantee

S9 definition: a company whose members have their liability limited to the amounts that they have undertaken to contribute to the property of the company in the event of it being wound up Such company does not have a share capital and so, they are public companies. Members are not required to contribute to the capital while the company is operating. The liability of the members is limited to the amount of the guarantee S117(2)(m): The guaranteed amount must be set out in the company’s application for registration S517: Upon winding up, members need not contribute more than the amount they have undertaken to contribute to the company’s property iii. Unlimited company S9 definition: a company whose members have no limit placed on their liability to the company Members are liable, in a winding up, for the debts of the company without limit if the company has insufficient assets to meet its debts iv. No liability company S112(3): A no liability company is prohibited from engaging in activities that are outside its mining purposes S162: A public company may be registered as a no liability company To be registered, a no liability company must: o Have a share capital o State in its constitution that its sole objects are mining purposes o Have no contractual right under its constitution to recover calls made on its shares from a shareholder who fails to pay a call – s112(2)

Proprietary and public companies -

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S9: public company means a company other than proprietary company S112(1): a proprietary company must be: o Company limited by shares; OR o Unlimited company that has share capital S113(1): Proprietary company must have no more than 50 non-employee shareholders S113(3): Proprietary company must not engage in any activity, such as issuing shares or debentures, that would require disclosure to investors under Ch 6D, except for an offer of its shares to existing shareholders or employees of the company or of its subsidiary

Function

Membership

Public - Carry large business - Disclosure requirements apply because they require investor to participate in fundraising S114: at least one member No maximum restriction

Name

All companies whose members have limited liability must have ‘limited’ or ‘ltd’ in the name

Replaceable rules and company constitution

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Directors

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Proprietary Carry small to medium business

S114: at least one member S113:maximum number of shareholders is 50 Can choose whether to restrict he right to transfer shares (eg: s1072G) S148(2): limited proprietary company must have the word ‘proprietary’ or ‘Pty’ as part of their name before the word ‘limited’ S148(3): an unlimited proprietary company need only have the word ‘proprietary’ at the end of the name

S134:a company can be governed by provisions of CA applied to the company as replaceable rules, a constitution or by a combination of both Some of the provisions are replaceable rules for proprietary companies and mandatory rules for public companies S135(1): single director/shareholder proprietary companies do not need comprehensive formal rules and not governed by replaceable rules S201A: public companies must have at least 3 directors At least 2 has to reside in Australia S203D,203E: Directors of public company can only be removed by resolution of its members

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S201A: Pty companies must have at least 1 director At least 1 has to reside in Australia S203C: General meeting of shareholders has power of removal of directors

The question of who can remove directors of pty companies is left to the company’s constitution S204A(1): No requirement for pty company to have secretary but if it chooses to appoint one or more, at least one must reside in Australia S113(3): pty companies cannot engage in any activity that would require disclosure to investor under Ch 6D S249: Pty company with more than one shareholder may pass a resolution without a general meeting if all shareholders sign a document to indicate their approval

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Secretary

S204A(2): A public company must have at least 1 secretary; at least 1 must reside n Australia

Raising funds

Public companies that wish to issue shares, debentures and other securities must comply with Ch 6D.

AGM

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S250N: a public company is required to hold AGM at least once a year unless it has only one member Main purpose of AG: Give shareholders an opportunity to consider the company’s audited financial report

Constitution and Replaceable Rules -

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A company’s internal management may be governed by replaceable rules contained in the Corporations Act or by a constitution or by a combination of both- s134 A company has the legal capacity and powers of an individual and a body corporate According to s140(1), a company’s constitution (if any) and any applicable replaceable rules have effect as a contract between: o The company and each member o The company and each director and secretary;and o A member and each other member Subject to certain restrictions, a company’s constitution may be modified or repealed if its members pass a special resolution- s136(2) A company that did not have a constitution when it was formed can displace or modify any or all of its replaceable rules if it adopts a constitution by special resolution- s135(2).

Replaceable rules Company’s constitution Effect of constitution and replaceable rules 

Contractual effect (s140)

Section 140(1) provides that a company's constitution (if any) and any replaceable rules that apply to a company have effect as a contract between: -

the company and each member (s140(1)(a)); and the company and each director and company secretary (s 140(1)(b)); and a member and each other member (s 140(1)(c));

under which each person agrees to observe and perform the constitution and rules as far as they apply to that person.

Corporation Act defines a corporation as a separate legal entity and classifies corporation into 2 types: i. ii.

Private Public

Proprietary companies and public companies are the two most common sub-category of corporations ( 99% registered company) Proprietary Companies 

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Limited by shares - Many evolved from family business - Like Salomon, after incorporation, the business when on as they did before. - S9 Corporation Act: liability of the members are limited - Limitation can be quantified and limited to the price of the shares. No liability to pay ever if you paid for the shares up front. If partially paid, when the company winds up, you are liable for the unpaid shares. Liability is unlimited no benefit of limited liability On winding up the business, the owner is personally liable for any outstanding debts of company. Proprietary Limited does not have obligations to disclose documents such as constitutions. Information about board directors, how many shareholders are private to a private company. o o

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Cl 2: reflects long settled principles as to legal effect of company constitution codified in 2001 Corporation Act s140(1) -

Constitution acts as a contract between company and its members; each Director and company secretary; between a member and each other member In so far as it implicates their right and responsibilities as individuals

Cl 3: replaceable rules -

Model rules can apply to companies that form after July 1998 They are optional 3 models: o can opt not to have constitution and the company observe the model rule ( substitute constitution) o Can have a constitution that says the company adopts the model rule o Can choose not to adopt the model rules and have a constitution that takes after the model rule and

How the models work?

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Company that exists after July 1998 can have an option- can repeal their existing document such as the memorandum and article of incorporation and adopt constitution at which point they choose to adopt model rules or not OR continue with their existing documents S134 Corporation Act Identify which rules are optional/ replaceable – s141 provides a table of replaceable rules S135 :replaceable rules for proprietary companies and mandatory rules for public companies ( private entities can do more than a public company)

Cl 4 : Amending constitution S9: ‘special resolution’ definition Cl 5 : -

Mirrors the basic features of proprietary company S 113(1): Pty Ltd are statutorily limited in size A proprietary company is private in every sense - cannot raise money from public

Cl 9 -

No maximum of directors but there is must be a minimum of 1 s 201A:Maximum number of directors

Cl 14 -

s124: Legal Capacity and Powers of Company

Cl 56: Transferability of shares -

Proprietary company wishes to restrict transferability of shares ensures full control of ownership ( Public company cannot) Pty company can reject request to transfer of share (s107 2G)

PART M: Adoption of constitution -

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S136( 1) : Can adopt constitution during or after company is registered (by passing of special resolution); can registered and not have constitution ( replaceable rules step in in absence of constitution) S136(1)(b) :oppression remedy that someone else seeks a court order for company to adopt constitution ‘sole Member’ = only one shareholder

Public companies Public company bears heavier regulatory burden in order to give consumer protection. Pty company can transition into public company. Can be reasons for wanting public funding; raising more capital ( expand business)    

Limited by shares o S9: ‘Company limited by shares’ definition Limited by guarantee Unlimited with share capital No liability company ( only mining companies )

Coca-Cola Amatil Ltd Constitution The adoption is stated in the cover page (after registration via special resolution as required by s 136) Cl 4 Transfer of shares -

Free transferability of shares is mandatory for public companies

Cl 5.2 Annual General Meeting -

No requirement of having this for Pty company because it is allowed to just have sole director. But public companies must have more than one directors S250 N: Public company must hold AGM

Cl 6.1 (a) satisfies s201A(2) Cl 6.2 Appointment of Directors -

Replaceable rules Freedom to appoint directors

Cl 7.2 -

Satisfies s 204A: Minimum number of secretaries. A breach is a strict liability offence. Private companies not required to have secretaries but public companies do. Tasmania Mines Limited Constitution

All public companies are required to have a registered office. Open to the public during specified hours. This requirement is found in s142,145. Cl 12.2:Seal -

S123 Company may have common seal

Cl 13.13 :Wholly owned subsidiary...