COMPANIES AND SECURITIES
LAW
77947
Week 1
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WEEK 1 TOPIC
Company Law in Context

History and evolution of company law
Regulatory framework
The uses of different business structures to
achieve different business objectives
Types of companies


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REQUIRED READING
¢  Textbook, chapters 1 and 3
¢  Harris, Hargovan and Adams Ch 3 (UTS Lib e-
reading (DRR))
—  For a discussion of the non-corporate business
structures
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SOME PRELIMINARY QUESTIONS
¢  What is company law and why are you all
studying it?
¢  What is a business, and why is this concept
relevant for company law?
¢  What do we mean by a “business structure”?
¢  What is a company? See next slide

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COMPANY
¢  An artificial entity recognised by the law as a
legal person with rights and liabilities.
¢  It has Shareholders (aka members) – regarded as
the owners of the company and usually enjoys
limited liability.
¢  It has Directors – usually given the power to
control the management of the company’s
business.
Note: Companies and Corporations are referred to and are used
interchangeably BUT strictly speaking a company is a type of
corporation
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ENGLISH LEGAL HISTORY
¢  The 1800s saw a number of Acts which gradually
added the main features we see today including
the ideas of:
—  Incorporation by registration
—  Limited liability for shareholders
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AUSTRALIAN LEGAL HISTORY
¢  At first the States had their own Acts modelled
on the UK Companies Act 1862
¢  1960s brought recognition of the need for
uniformity
¢  Similar Acts were introduced in all States and
Territories
¢  A number of schemes have been used to have a
uniform and later a single Act applying to all
Companies in Australia
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CONSTITUTIONAL PROBLEMS
¢  A continuing problem is the limited power given
to the Commonwealth Government to make laws
with respect to Corporations
¢  This means that the Commonwealth needs the
help of the States to pass legislation which
comprehensively covers all companies
¢  There are also problems with who will “Police”
and administer these laws
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WEEK 1 TOPIC
Company Law in Context

History and evolution of company law
Regulatory framework
The uses of different business structures to
achieve different business objectives
Types of companies


9
REGULATORY FRAMEWORK - ASIC
¢  Australian Securities and Investments
Commission (ASIC) - main regulating body for
companies law
¢  Registers companies
¢  Grants AFSL’s
¢  Registers auditors and liquidators
¢  Grants relief from compliance of Corporations Act
¢  Maintains publicly available documents
¢  Investigates suspected breaches of the law
¢  Advises the minister
¢  Ban’s persons from providing financial services
¢  Seeks civil penalties from courts
¢  Accepts documents in relation to takeovers
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REGULATORY FRAMEWORK – OTHER
BODIES
¢  Australian Securities Exchange (ASX): Operates financial
markets, with a role in supervising listed entities
¢  Takeovers Panel: replaces the court as the main forum for
resolving disputes regarding takeovers
¢  Financial Reporting Council: oversight body in relation to
financial reporting
¢  Australian Accounting Standards Board (AASB): creates
accounting standards
¢  Auditing and Assurance Standards Board: mirrors AASB,
but in relation to auditing standards
¢  Companies Auditors Disciplinary Board: can cancel or
suspend an auditor’s registration
¢  Corporations and Markets Advisory Committee: defunct.
Was an advisory body on corporate law reform.
¢  Parliamentary Joint Committee on Corporations and
Financial Services Reform: Parliamentary supervision of
corporations law.
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WEEK 1 TOPIC
Company Law in Context

History and evolution of company law
Regulatory framework
The uses of different business structures to
achieve different business objectives
Types of companies


12
BUSINESS STRUCTURES
¢  Businesses are the engine of the capitalist
economy such as the Australian economy.
¢  In addition to companies, there are a variety of
ways that a business may be structured/
organised:
—  Sole Trader
—  Partnership
—  Joint Venture
—  Trust
—  Association
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WHICH BUSINESS STRUCTURE?
¢  Decision on one or more of business structures is
influenced by factors such as:
—  Size of business and possible future expansion (raising
capital), and duration;
—  Setting-up and costs, and ongoing operating costs;
—  Exposure to liability if business fails;
—  Ability to participate in management;
—  How to deal with profits and losses?
—  How to deal with taxation liabilities?
—  Degree of importance attached to privacy of financial
information.
¢  Most important factor: risk and consequences of
business failure and who bears the liability.
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SOLE TRADER
¢  Simplest business structure; very little cost
¢  Sole Trader is the business, owns all assets,
takes all profits
¢  Sole Trader is responsible for all liabilities/losses:
personal liability
¢  Very few regulatory requirements: Business
Name Registration; ABN for Taxation purposes
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PARTNERSHIPS
¢  There are 3 legal requirements for a partnership
to exist:
¢  Two or more persons must work together (relation
which exists between persons) in the same business
enterprise (carrying on a business)
¢  by persons working together (in common)
¢  attempting to make a profit (with a view of profit)
¢  See Partnership Act 1892 (NSW) section 1.
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PARTNERSHIP PRINCIPLES
¢  Three important partnership principles:
—  A Partnership is not a separate entity.
—  Each Partner is both a principal and agent of the
business (partnership) (see ss. 8, 12)
—  A Partnership is based on mutual trust and
confidence, an equitable relationship (based in equity)
resulting in each partner being a fiduciary of the
other, meaning they must act with honesty, loyalty
and put the interests of partnership ahead of own
interests - Chan v. Zacharia (1984) 154 CLR 178
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LIABILITY OF PARTNERS
Consequences:
¢  every partner may incur liabilities on behalf of
the partnership.
¢  each partner is liable for the debts and
obligations properly incurred on behalf of the
partnership (joint and several liability).
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PARTNERSHIPS
¢  Generally the Partnership Agreement will set out the
rights and obligations of Partners.
¢  Otherwise Partnership Act 1892 (NSW) applies.
¢  e.g. section 27 states:
—  The partners share equally in the profits
—  The firm must indemnify each partner for payments incurred
by them
—  Every partner may take part in the management of the
business
—  A partner can retire by giving written notice – thereby ending
the partnership
—  A partner should not compete with the firm
¢  Additionally
—  No more than 20 general partners.
—  Limited Partnerships

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NOT A PARTNERSHIP! IT IS A JOINT
VENTURE
¢  An association of persons, natural or corporate,
who agree by contract to engage in some common,
usually ad hoc or single undertaking, for joint
profit, or to generate a product to be shared
among the participants, by combining their
respective resources, without forming a legal
partnership or a corporation.
¢  Liability is individual not joint and several.
¢  Other differences between a JV and a
Partnership are discussed in HHA Ch 3.
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TRUSTS
¢  A Trust is created when the owner of property
(“Settlor”) legally transfer that property to a
second person who is trusted (“Trustee”) to be
held on trust for the benefit of a third person
(“Beneficiary”). Note the following:
—  The Trustee has legal title to the trust property.
—  The Beneficiary has the beneficial or equitable interest
in the trust property.
—  The trust is governed by the law of equity and the
Trustee is a fiduciary, in fact is the prototype of the
Fiduciary.
—  Trusts are mainly used for tax planning.
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USE OF TRUSTS
¢  A trust is normally used to safeguard assets or to defer
the timing and application of tax
¢  A trust usually has a life of less than 80 years.
¢  A common application of a trust is that involved in a
testamentary trust (will) for safeguarding assets on
the death of the testator
¢  Another common application is in a business structure
where an asset has been acquired and the intention is
to use the asset for commercial purposes amongst the
mix of other assets but at all times bearing mind it
requires protection
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ASSOCIATIONS
¢ A group of people who got together to form
an association for purposes - unconnected
with profit-making.
¢ Examples are sporting and recreational
clubs
¢ Can choose between:
—  unincorporated association (not a separate legal
entity; members or management committee are
liable) or
—  incorporated association (a separate legal entity
and association itself is liable).
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WEEK 1 TOPIC
Company Law in Context

History and evolution of company law
Regulatory framework
The uses of different business structures to
achieve different business objectives
Types of companies


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TYPES OF COMPANIES
¢  The Corporations Act 2001 recognises a number
of different types of companies.
¢  Types of Companies according to liability:
—  Limited by shares;
—  Limited by guarantee;
—  No Liability;
—  Unlimited Liability with share capital.
¢  Types of Companies according to size:
—  Proprietary (aka Private);
—  Public.
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COMPANIES LIMITED BY SHARES
¢  Maybe a proprietary (private) or public co;
¢  Has share capital, often with different classes of
shares [ordinary v preference shares];
¢  May allot and issue shares as the directors think fit;
¢  Liability of members is limited to the amount (if any)
unpaid on their shares [s 9 of CA];
¢  Shares are personal property of the members and
(subject to restrictions in the constitution/rules) are
freely transferable.
¢  Must have the words ‘limited’ or abbrev. ‘Ltd’ at end
of its name: s 148(2) – purpose?
¢  Exception: charities – s 150

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PROPRIETARY (I.E., PRIVATE) COMPANIES
¢  A company limited by shares that is registered
as, or converts its registration to, proprietary, :
—  Limited to 50 non-employee members
—  Cannot offer shares/securities to the public
—  Usually name finished with “Proprietary Limited” or
“Pty Ltd”
¢  Small proprietary company – s 45A
—  Must be a proprietary company
—  Satisfy 2 out of 3 of the following tests:
¢  Consolidated revenue of less than $50m
¢  Consolidated gross assets of less than $12.5m
¢  Less than 50 employees
—  Has advantages from a reporting perspective
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PUBLIC COMPANY LIMITED BY SHARES
¢  A company that is not a proprietary company
¢  NOT the same as a “listed” company. A company
is listed if its shares are listed on an official stock
exchange.
—  All listed companies are public
—  Not all public companies are listed
¢  Tax legislation has a different definition for the
terms “public” and “private”. Need to read this
legislation
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OTHER TYPES OF COMPANIES
¢  Unlimited liability companies
—  Liability of members is unlimited
—  Has all the other advantages of companies, such as legal
personhood
¢  No Liability companies
—  Must be mining companies
—  Members cannot be asked to contribute uncalled
amounts
—  Why is this useful for the mining industry?
¢  Companies limited by guarantee
—  No shares, just “members”
—  Members guarantee a certain amount to be paid on
shares
—  Generally, not-for-profit entities
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OTHER CONCEPTS IN RELATION TO
COMPANIES
¢  See discussion in textbook at parts 3.130—3.200
for the following concepts:
—  Holding and subsidiary companies
—  Ultimate holding company
—  Wholly-owned subsidiary
—  Related bodies corporate
—  Foreign companies
—  Registrable Australian bodies
—  Trustee companies
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WEEK 1 TOPIC
Company Law in Context

History and evolution of company law
Regulatory framework
The uses of different business structures to
achieve different business objectives
Types of companies


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