Australian Corporations Law

1 January 2017

There are two company classifications, proprietary and public. Most Australian companies are proprietary limited companies because this classification and type suits the needs of most businesses. (i) Reasons to Choose a Proprietary Company A proprietary company by comparison to a public company has simpler and therefore lower cost reporting obligations, is limited to 50 non employee shareholders’, ‘and between 1 to 50 members’ , a public company can have more. A proprietary company requires a minimum of one director a public company requires a minimum of three directors.

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The director or directors of proprietary company must ordinarily reside in Australia and be 18 years of age or older. A public company can be listed on the stock exchange and raise funds directly from the public by offering shares or debentures for sale’ a proprietary company cannot, however a proprietary company can offer shares to existing shareholders or employees. (b) Company Types There are two types of proprietary companies, companies limited by shares and companies unlimited with share capital. (i) Reason to Choose a Company Limited by Shares

In the event that a company limited by shares does not have sufficient assets to meet its debts, each member is only liable for the amount, if any, that remains unpaid on their shares , ‘[L]imited liability means that members of a company are not personally liable for the full extent of their company’s debts. ’ This limitation of personal liability is the great advantage of this type of company. (ii) Reason Not to Choose a Company Unlimited with Share Capital An ‘unlimited company means a company whose members have no limit placed on their liability’ for their company’s debts. Unlimited companies are rarely used. Company Names A company name is optional; the company’s ACN can be used instead. The name ‘Sai Kung’ has been chosen and so an application for reservation of the name, form 410, must be lodged with ASIC prior to the application to register the company. See attachment 1. ‘A limited proprietary company must have the words “Proprietary Limited” [or Pty Ltd] at the end of its name. ’ B Application for Registration 1 Application Form To register the company, ASIC form 201 must be completed and lodged with ASIC. See attachment 2. 2 Additional Information Required for Registration

In addition to the classification, type and proposed name of the company the following information must be provided: •‘the name and address of each person who consents to become a member’ • ‘the present given and family name, all former given and family names and the date and place of birth of each person who consents in writing to become a director •‘the present given and family name, all former given and family names and the date and place of birth of each person who consents in writing to become a company secretary;’ A proprietary company is not required to have a secretary •‘the address of the company’s registered office;’ •‘the address of the company’s proposed principal place of business (if it is not the address of the proposed registered office);’ •‘the number of shares each member agrees in writing to take up;’ The price of each share, whether the share will be fully paid on registration, if not fully paid, the amount that will be unpaid on each share and whether or not the shares each member agrees to take up will be beneficially owned by the member on registration of the company. 3 Consents and Agreements Consents and agreements of nominated directors, secretary and members must be obtained prior to the application for registration being accepted by ASIC. 4 Rules for Internal Management of a Company

Regarding the rules for the internal management of a company, a company can either use the ‘replaceable rules’ as stated in the Corporation Act, or form a constitution, the company’s own rules, or a combination of replaceable rules and the constitution. C Registration by ASIC Registration is at ASIC’s discretion. 1 Issue of Certificate of Registration Sai Kung Pty Ltd will not exist, will not become incorporated, until ASIC registers the company and issues a certificate of registration. 2 Corporate Key ‘Within two days of registration, ASIC will also issue a corporate key to the company’s registered office address. ’ This is an eight digit number used to lodge forms with ASIC, access company records and receive annual statements online. This number should be kept confidential. D Alternative: A Shelf Company

If you do not wish to go through the process of registration alternatively you could purchase a shelf company, this is a company that has already been registered and is therefore available for immediate use. A shelf company can be renamed with the name of your choosing. The Facts 5 January Toto acting as a promoter, entered into a contract on behalf of Sai Kung (‘SK’), a yet to be registered company. The contract was with Television Broadcasts Limited (‘TVB’), to pay TVB for their professional and technical assistance in producing a television seafood cooking show. 12 January SK was registered by ASIC, the company did not adopt a constitution, did choose to have a common seal and Flora and Toto were both appointed as directors.

SK did not appoint a company secretary. TVB commenced providing SK with professional and technical assistance to produce the television show. 2 February The contract with TVB was ratified by SK on 2 February. 20 February As at 20 February the shows production has not commenced and TVB has not been paid for its assistance. B The Law Applied to the Facts When Toto, on behalf of SK, entered into the contract with TVB, he acted as a promoter, ‘anyone who exerts themselves on behalf of a not-existent company’ . Toto the promoter was liable to pay TVB for their services in the event that SK did not register or SK did register but did not ratify the contract.

On 2 February SK, a registered company since 12 January, ratified the contract with TVB. SK is now liable and bound by the contract made on its behalf on 5 January. However, in the event that SK does not pay TVB part or all of what is owed, Toto, as the promoter, remains liable. If Toto had obtained a release from TVB he would no longer be liable or ‘[a]n alternative way in which a company [SK] can become primarily liable is where the company [SK] and the other party [TVB] substitute a new contract in place of the pre-registration contract (otherwise known as “novation”). This discharges any liability of the promoter [Toto] in relation to the pre-registration contract.

An effective novation requires the consent of both the company [SK] and the third party [TVB]. ’ C The Objective of the Section 133 of the Corporations Act ‘At common law, if a pre-registration contract was not performed … neither the company … nor the promoter were liable. The innocent other party was left with an unenforceable contract’, an example is the case Black v Smallwood . A promoter ‘was only bound if they intended to be bound’ as in the case Kelner v Baxter where ‘[t]he court examined the written contract and imputed and intention by [the promoter] Baxter to bind himself personally. ’ Section 133 of the Corporations Act states that Part 2B. replaces any rights or liabilities anyone would otherwise have on the pre-registration contract’ , ending the ‘uncertainty arising out of the laws of agency and contract. ’ ‘The issue of where liability lay for not fulfilling obligations incurred under pre-registration contracts is now governed entirely by the Corporations Act and its overriding aim is to ensure that the innocent other party [in this case TVB] is not left without legal remedy.

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