Topic 4: Types of Reading: Ch 3 paragraphs [3.05 - 3.170]  Liability of members

 Proprietary and public companies  Large and small proprietary companies – s 45A  Holding and subsidiary companies

Liability of members [3.10] pg. 80 There are 4 types of companies that can be registered, classified according to the extent of the liability of members: s112(1) - limited by shares - limited by guarantee - no liability - unlimited liability

Types of companies s112 - Proprietary s113  Limited by shares  Unlimited with share capital - Public s9  Limited by shares  Limited by guarantee  Unlimited with share capital  No liability

Company limited by shares [3.15] - most common type of company - s9 definition: the liability of its members limited to the amount, if any, unpaid on the shares respectively held by them - issue price fir shares: determined by agreement between the company and investors - fully paid shares: investors pays the entire issue price in one instalment - partly paid shares: shareholders pays part of the issue price immediately - Name: “limited” or “ltd” – notice for potential creditors that the liability of shareholders is limited & debts of the company can only be satisfied from the company’s assets

Company limited by guarantee [3.20] - 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. - Do not have a share capital - Thus members are not required to contribute capital while the company is operating - When the company goes insolvent, shareholders are liable to pay up to the amount specified as the members’ guarantees - Usually for not-for-profit entities: e.g. sporting clubs, charity

Unlimited liability [3.25] - A company whose members have no limited placed on their liability to the company - Not used for normal - Members are liable for the debts of the company without limit if the company goes insolvent

No liability company [3.30] - Only for mining companies

Proprietary & Public companies [3.40] - Companies classified according to their public status   Proprietary company . Large proprietary company . Small proprietary company

Proprietary Companies - must have a share capital - no more than 50 non-employee shareholders - not engage in activity that requires disclosure to investors under Ch 6D  E.g. issuing and selling shares to the public

Public Companies - all companies other than proprietary companies - guarantee and NL companies must be public - companies’ limited by shares and unlimited companies’ may be public - public companies are not necessarily listed on ASX

Public & Proprietary Companies Compared

Proprietary Public Function For small/medium sized businesses For large businesses that require many investors to participate in fundraising Membership - At least one member - At least one member - Max 50 shareholders - No max for shareholders Directors - At least one director - At least 3 directors - At least one must ordinarily reside in - At least 2 of them must ordinarily reside Australia in Australia Secretary - Does not require to have a secretary - Must have at least one secretary - At least one must ordinarily reside in Australia AGM - Does not need to hold an AGM unless - Must hold an AGM at least once a year it is required by their constitution Auditors - Large proprietary companies must - Must appoint an independent auditor to appoint an independent auditor to audit audit their financial reports their financial reports Registered Not obliged to keep their registered office open Must keep their registered office open to the office to the public public during the opening hours specified in s145

- Name: Ltd or Pty Ltd - Proprietary: Cheaper to maintain than public companies - The Act imposes greater disclosure obligations on public companies  As they may raise money from large amount of people - Some of the provisions of the Act are replaceable rules for proprietary companies but mandatory rules for public companies - Single director/shareholder proprietary companies do not require comprehensive formal rules  Not governed by replaceable rules - Purpose of AGM: give shareholders an opportunity to consider the company’s audited financial report

Large and Small Proprietary Companies [3.100] pg. 89 - Proprietary companies are classified as either large or small proprietary companies - This classification is based on the size of the company’s - This distinction seeks to distinguish small, closely held companies conducting small scale business enterprises, form large proprietary companies which are often subsidiaries of public companies - Under s45A(2), a proprietary company is regarded as a “small proprietary company” if it satisfy at least 2 of the 3 criteria: Less than –  $25 consolidated operating revenue  $12.5 consolidated gross assets  50 employees

Advantages of small proprietary companies [3.105] pg. 90 - Small proprietary companies are subject to fewer requirements in relation to preparation, lodgement and audit of financial reports - Small proprietary companies do not need to prepare audited financial reports unless directed to do so - Public and large proprietary companies:  required to prepare annual financial reports s292  Reports are to be audited s301  Reports must be sent to members s3124  Reports must also be lodged with ASIC s319

ASX listed companies [3.125] pg. 92 - Most of the largest businesses have their shares listed on the ASX - ASX listed companies are regulated by both the Corporations Act and the ASX Listing Rules - Allows companies to have a greater ability to raise capital  More opportunity to sell shares  Being listed is seen as having financial strength - A public company must satisfy various requirements to gain listing  Including a minimum shareholder requirement and a company size requirement - The Corporation Act imposes additional requirements on listed companies - Listed companies are “disclosing entities” as defined in Pt 1.2A Required to –  Full year & half year financial reporting obligations  Continuous disclosure obligations

Holding and Subsidiary Companies [3.130] pg. 94 - The Corporations Act classifies companies as holding and subsidiary companies - Under s46(a), a body corporate is regarded as a subsidiary of another body corporate if, and only if, the other body:  Control of the composition of the board OR  Position to cast or control the casting of majority of votes at shareholders meeting OR  Holds more than half issued capital