Professional Documents
Culture Documents
LAW 2460 Week 8s 2011
LAW 2460 Week 8s 2011
LAW 2460 Week 8s 2011
Characteristics of a Company
upon incorporation, a company: Has separate legal personality has perpetual succession has power to hold property is capable of suing and being sued is capable of exercising all the functions of an incorporated company (this includes the power to issue shares/debentures)
Classification of Companies
Companies are classified according to: the liability of members Proprietary and Public Holding and subsidiary Co Recognised foreign companies Trustee Co
Classification of Companies
Co.s own liability is never limited, however members liability arises on companys liquidation the liability of members: Limited by shares ( liability limited to amount of $ unpaid on the shares) P/P (Ltd) Limited by guarantee ( liability limited to amount of $ members agree to pay on winding up) Public Unlimited co ( no limit on members liability) P/P No liability Co( mining Co- NL) Public
Classification of Companies Proprietary and Public Public1. all companies not proprietary
2. at least 3 directors / AGM/ auditors 3. Listed or unlisted 4. greater statutory duties than proprietary companies
Classification of Companies
Proprietary and Public Props.113 1. limited by shares (Pty Ltd) up to 50 shareholders 2. must not engage in Ch 6D activities 3. S.45A distinguishes between small and large prop co 4. small Pty: gross Y less than $10m, assets less than $5m, max 50 employees 6. Public and large pty must have financial reports and auditing, and sent to members and ASIC 7. All prop restrict right to transfer shares 8. prohibit any invitation to the public to subscribe for any shares in or debentures of the company or to deposit 8 money with it
Classification of Companies
holding, subsidiary,groups of companies and related companies: Note :holding Co* not defined in Act but subsidiary defined in s.46 A Co is a subsidiary if another co: Controls composition of Board of Directors controls more than half the votes at general meeting holds more than half the shares in subsidiary Recognised foreign companies: Must be registered with ASIC s.601CD
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Company Constitution
Constitution ( or replacement rules)( 140(1)) defines the objects and powers of the company regulates the operations and internal management of the company document must be lodged with ASIC is a contract between the Co and each member between members between members and Co Director/Co Secretary Note: memorandum and articles Note: Ultra Vires- under this doctrine any acts by the Co outside its Constitution was void- rule abolished by S.124
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Share Capital
Share the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, consisting also of a series of mutual covenants entered into by all the shareholders Company raises the initial capital or further capital (investment) by way of an issue of shares Shares shall be a moveable property, thus indicating that a shareholder may do what he likes with them; sell them, give them away or pledge them as security or a loan.
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Share Capital
Authorised capital -the amount of authorised capital which the company intends to register and must be stated in constitution-comprises par value shares that have been/ will be allotted.** This requirement is no longer necessary after 1998 amendments(254C)
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Types of shares
1) ordinary shares ( any share that is not a preference share). Rights attaching to these shares are a) to participate in the surplus profits of the co through dividend distribution b) return of capital in the event of winding up company c) full voting rights at general meetings (usually) 2)Preference shares- two types a) non voting preference shares b) preference shares with voting and participation rights* Preference shares usually entitle the holder to a fixed and cumulative dividend which is payable out of profits in priority over dividends on ordinary shares and to a return of capital.
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Dividend Policy
Matter for the Directors only Must be paid out of profit, s 254T( not capital) as the capital of the company must be maintained to protect creditors Before a dividend can be paid it must be declared, s 254U In public company, recommended but declared at the AGM
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Fundraising/capital raising the procedure that occurs when a public company issues shares, debentures, legal and equitable interests and options.(s.9 , 761a & 700(4)) Applicable law ch 6D Most fundraising involves shares rather than debentures as there is a more complex procedure for issuing debentures, not only are disclosure docs required but a trust structure must be established to hold the security Sale of existing shares generally not subject to Ch 6D
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Investor Protection
Disclosure docs not required: Excluded investment, s 708: 12 mths/20 Investors (personal offering) raising max of $2m rule ( small scale); $500,000 minimum investment or $2.5m net assets and gross income over $250,000; (sophisticated investors) or through a licensed dealer to professional investors or executive officers of company.
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Liability-offences
S.726- offering securities in a non existent body S.727- offering securities without current disclosure doc S. 728(1)- misleading and deceptive statements, omissions, new matters.. S. 728(2)- (1) is breached if there are no reasonable grounds for making that statement. If S. 728(1) contravened then s.729 provides for compensation S.729(1) claimants must prove damage results from the deceptive or misleading statement and s.729 sets a list of who may be liable- incl offeror, directors of body making offer, persons named in the document with their consent as proposed director, underwriters, persons named in the document who with their consent have made statements included in the document 21
Corporate Governance
The term corporate governance refers to structures and procedures within a company that ensure appropriate standards of corporate behaviour and accountability the emphasis is on self regulation corp. governance has the purpose of monitoring and controlling the management of corp so as to provide more effective management and to improve shareholder value the emphasis on corp gov reflects the investors demands that corp improve their internal structures which ultimately may improve investor returns. 23
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statutory duties
S.180- directors and officers have a duty to exercise a reasonable degree of care and diligence- defence ' business judgement rule S.181-duty to act in good faith in the best interests of the Co and for a proper purpose S.182-improper use of position S.183- improper use of information that is gained in their position within Co Ch 2E related party transactions S.191 directors who have material self interest in a matter before the board must disclose this to other directors Material self interest- s.195
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Fiduciary duties
The word fiduciary refers to a person holding a position of trust such that he/she is bound in equity not to abuse the trust. Fiduciary duties require the Director to act bona fide in the best interest of the company as a whole.. Fiduciary duties are imposed individually not on the Board collectively. It doesnt matter how wide or extensive the powers given to the directors in the Co constitution ,the fiduciary powers remain the same
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Fiduciary duties
The fiduciary powers are: 1) To act bona fide in the best interests of the company. This duty is also found in legislation a director shall at all times act honestly and use reasonable diligence in the discharge of his duties legislation also provides that an officer shall not make improper use of information gained in his position. The words honestly and bona fide are interpreted as meaning what the directors consider is in the best interest of the company., not necessarily what others or the court considers was in the companys best interests.
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http://www.asx.com.au/supervision/governance
1. lay solid foundations for management and oversight 2. Structure the board to add value 3. promote ethical and responsible decision making 4. safeguard integrity in financial reporting 5. Make timely and balanced disclosure 6.Respect the rights of shareholders 7. recognise and manage risk 8. encourage enhanced performance 9. Remunerate fairly and responsibly 10. recognise the legitimate interests of stakeholders
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Minority shareholders
Shareholders vote for the Directors, .alteration of the Constitution share capital and variation of rights of shareholders, however these matters may lead to minority shareholder oppression
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Investor Remedies
Minority shareholders provided with some protection under the Co Act.. s 232 oppressive or unfair conduct s 233 Remedies including, winding up of company(s461) Right to inspect the company books, s 247A Injunction, s 1324 Derivative action (investor brings action on behalf of the company) s 236 and s 237 Read :Gambottos case
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