Essay: Introduction To Company Law And Business Structures In Australia.

Write the research for relevant newspaper articles and contemporary ideas/issues as well as keeping a diary of their progressive learning based on the weekly topics as per Subject Outline throughout the first 9 weeks of the course.

Types of Business Structures in Australia

It was my class of Company Law in my college. I was excited to learn about new things about the commercial world, its laws and legislation. Since it was my dream to become an entrepreneur after the completion of my studies, so it could be of great help to me. Ms. Celine Adams is a kind, caring, patient and knowledgeable professor, so it was a pleasure to study the various aspects of Company Law under her guidance. The class started with the introduction of the various types of business structures existing in Australia.

There are several types of business structures existing in Australia. The type of business structure chosen can determine the tax liability and their responsibilities. It also determines the personal liability and protection of the assets. The costs incurred and the volume of the required paperwork can also be analyzed. Amongst several business structures, the most widely used is a partnership, sole trader, company, trust, cooperative and incorporate the association.

I had learned that the sole trader is an individual trading on his own while the partnership pertains to several people executing the business together but not as an organization. The company is a separate legal entity having its existence distinct from others. Trust is a body holding the property or income for the advantage of others. The cooperative is a business owned by its members. It should have at least five members. The incorporated association is a body which is formulated for the purpose of recreation, culture and charity.  

As per the article published in The Wall Street Journal, more participative structure should be adopted in the digital age. The business structures should adapt themselves to the speedy changes happening in the world. 

The second lecture was about companies and their incorporation. I learned that incorporating a company is a straightforward process. The pre-incorporation phase includes consultation with the legal advisors who guide them in fulfilling the requirements regarding requisite due diligence documents. It also deals with agreeing to the three preferred names of the new company and filling the consent forms by regarding the directors and shareholders.

The incorporation procedure comprises of reserving the name of the companies and checking their availability with the help of the Australian Business Register (ABR). If the names are available, then Form 410 is to submit for the same. The company should be incorporated using a shareholder and nominee director. After the registration of the name  , Form 201 has to be submitted to the Australian Securities and Investment Commission (ASIC)  so that the company can be incorporated . Thereafter , the registration certificate is issued along with stating the public profile of the company, the certificate of incorporation and the unique nine digit Australian Company Number (ACN). The tax registration is secured with the Australian Tax Office which includes the Australian Business Number (ABN) and the Tax Filling Number for the individuals. Afterwards the  corporate bank account is opened .

Incorporating a Company in Australia

The post incorporation phase comprises registration for GST and worker compensation insurance. It is followed by submission of the annual return to ASIC on the completion of one year of its incorporation.

As per an article published in  Business News Daily, prior to incorporation of a company, the promoters should do a quick research for the existing companies in the selected industry.   

In the third lecture, the constitution of a company is governed by the provisions of the Corporation Act 2001 (Cth) (the Act). The company can implement its own constitution or it can use the replaceable rules which are mentioned in the Act. It can also have a combination of both of them. According to Section 136(1) of the Act mentions the way in which the constitution of the company can be adopted. A company can adopt the constitution by registering it if each of the member who is specified in the application consent to become a member in writing as per its terms.

A company can either be registered without a constitution and can adapt it through a special resolution. Under the provisions of Section 233 of the Act, the court can make an order requiring it to adopt the constitution. This is covered under the oppression remedy. The public companies adopting the constitution should lodge its copy and concerned special resolution with ASIC within a period of 14 days. The internal management of the company governs the matters such as  rights of the shareholders ,   their conduct and  appointment of the directors and their remuneration , their powers and meetings .

As per an article published in the Wall Street Journal, as per the new governance rules, the largest companies of UK are asked to improve the quality of their financial reporting as per the newly introduced code.

Although the term promoter is not defined in the Corporations Act 2001 (Cth) but in general terms he is defined as a person who is involved in the incorporation of the company in direct or indirect manner. However, it excludes the person who is acting in a professional or ministerial capability. The promoter has a fiduciary relationship with the company and they must act in the best interests of the company.

Their responsibility is to avoid placing themselves in situations where there is a probability of conflict between their duty and personal interests. Additionally, the promoters of the public companies are administered by regimes as per the Corporations Act and ASX Listing Rules. Their duty is to disclose their personal interests in a company. The disclosers must be made in a full and frank manner and it is mandatory to make the disclosures in front of the independent board of directors.

Constitution of a Company

Since a company cannot enter into pre-incorporation contracts so promoters enter into pre-incorporation contracts. If they enter into a contract in the arrangement is being done to take over the business of another company then the personal liability of the promoters cease to exist after the incorporation of the company.

As per Financial times, the responsibility of the promoters is to analyze the scam relating to the money laundering cases occurring in the companies. 

In the fifth lecture, we studied the rights and powers of the members. The shareholders are part owners of the business. The shareholders become the members once their names are entered into the register of the company. Every company must have a minimum number of members. Their rights and powers include participation in the Annual General Meeting (AGM) of the company.  It is held once in a year and the powers of the shareholders include their decision making on the election of new directors and their remuneration. It also involves their decisions on all the other business of the company. The shareholders can also choose to attend the meeting by the proxy.

They also have the right to receive the annual reports in hard or soft copies. Through the inspection of the annual reports, they can easily predict the performance of the company. They also have the right to receive the dividends and choosing to receive them as additional shares.

 As per the Washington Post, the main aim of the companies should maximize the value of the investments of the shareholders.

Due to the crisis at the international level, there has been an increasing spotlight on the decision making of the corporates. In this context, the corporate governance plays a dominating role in the business environment of Australia. The significant areas of concern for directors comprise of maintaining culture in the company. The corporate culture and governance are interconnected.

There should be a diversity in the composition of the board. It is concerned about the recommended skills of the board for listed companies on the Australian Stock Exchange. The companies are required to adopt an innovative approach in order to make sure that they continue to be competitive in the ever-changing environment. They should be attentive towards the advancements in the technology and the emerging threats of cybersecurity. There is a need for greater transparency regarding the management and reporting of the exposures of environmental risks and social responsibility.

Rights and Powers of Company Shareholders

 As per an article in The Guardian, PWC failed to audit the accounts of BHS in a diligent manner. The company’s accounts were misleading and depicted unrealistic forecasts before it was sold.   

 The directors are required to exercise their powers and duties with due diligence and care in order to make sure that they are properly informed about the fiscal position of the company. They should make sure that the company should not transact business if it is insolvent. They have the duty to exercise their powers in good faith and in the best interest of the company.

They should not use their position to gain an undue advantage for themselves and act in the best interest of the company. They must keep suitable financial records and should a have a complete understanding of the financial transactions of the company. They must act to owe a duty to the individual members. For example, a director may act as a proxy for members owing to their responsibility that members may vote as per their will.

It was stated in The Wall Street Journal that sustainability includes the governance of environmental and social aspects of the administration of the company by its representatives i.e. directors. It should be inculcated in the agendas of the board so that the competitiveness of the company and its ability to continue to operate can be enhanced.

In this lecture, the professor reminded us of the company law quiz which is to be held at the end of the session. For the sourcing of funds, there are two types of modes of finance. They are debt financing and equity finance. Debt financing is the money obtained in the form of debt from a lender. It comes with conditions on the way money will be repaid. The common sources of finance are financial institutions and companies, suppliers and retailers.

Equity Finance is when money can be provided in exchange of owning a part of the business. The money provided does not need to be returned by the borrowers. The modes of equity financing can be through self-funding, private investors, venture capitalists and the stock market.

Apart from this, the easiest way to finance the business is to use one’s own savings. Another mode of financing is a credit card. It comes with the benefit to finance a business and to extend the cash flows.

As per Business NEWs Daily, there are huge opportunities for financing of a company such as a loan , a cash advance against credit card and leasing of equipment.   

Corporate Governance in Australia

The minority shareholders in private companies do not have the exit options and they are often vulnerable to exploitation in order to decrease the value of their investment. So, in this case, the minority shareholders can be safeguarded in two ways viz. safeguarding the minority shareholders by granting them the legal rights to allege the company in respect of damages done to them at personal levels.

The courts protect the minority shareholders by applying equitable constraint due to the misuse of the majority shareholders even it is legal in nature. The court shall interfere in the decision made by the majority if it is proved that the votes were cast by majority shareholders for a purpose which was outside the range of purposes beneficial for the shareholders as well as the company.

As per an article published in Times of India, in order to safeguard the interests of the shareholders, it is essential to take prior approval of the audit committees for related party transactions.

It is essential to protect the interests of the shareholders as they are the ones who invest their money in the companies and aspire for its long-term sustainability and growth. So, it is essential to establish the norms of corporate governance in the company.  

A Legislation

Corporations Act 2001 (Cth) 

Small Business Development Corporation, Choosing your business structure( 2018)

< https://www.smallbusiness.wa.gov.au/business-advice/business-structure/business-structures >

Deloitte,’ Organizing for Work in the Digital Age’, The Wall Street Journal (online) ,2017 <https://deloitte.wsj.com/cmo/2017/06/29/organizing-for-work-in-the-digital-age/  >

AustLII , Corporations Act 2001 (AustLII,2010) .

 Rivera Andreas, ‘How to Start a Business: A Step-by-Step Guide’, Business  News Daily (online),7th June ,2018 <https://www.businessnewsdaily.com/4686-how-to-start-a-business.html >

 Australia ,Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations(CCH Australia Limited, 2011). 1-10.

 Bruner Christopher M.,Corporate Governance in the Common-Law World: The Political Foundations of Shareholder Power(Cambridge University Press,2013). 1-10.

Trentmann  Nina ,’New U.K. Governance Code Focuses on Reporting, Executive Remuneration’, The Wall Street Journal (online),16th July, 2018< https://blogs.wsj.com/cfo/2018/07/16/new-u-k-governance-code-focuses-on-reporting-executive-remuneration/  >

McLannahan   Ben,‘Wolf of Wall Street’ warns of impending crypto currencies ‘scam’, Financial Times(online ), 22nd October ,2017< https://www.ft.com/content/739f8954-b61a-11e7-a398-73d59db9e399>

Yang Jia Lynn,  ‘Maximizing shareholder value: The goal that changed corporate America’, Washington Post (online ), 26^th August, 2013< https://www.washingtonpost.com/business/economy/maximizing-shareholder-value-the-goal-that-changed-corporate-america/2013/08/26/26e9ca8e-ed74-11e2-9008-61e94a7ea20d_story.html?utm_term=.a1d34d822ed2 >

Farrell Sean,’Watchdog berates PwC over 'misleading' BHS accounts’, The Guardian (online ), 15 August ,2018 < https://www.theguardian.com/business/2018/aug/15/watchdog-berates-pwc-misleading-bhs-accounts>

AO Robert Baxt , Duties and responsibilities of directors’ and officers’ (April 2012) < https://www.companydirectors.com.au/~/media/resources/director-resource-centre/publications/books/books-content-campaigns/duties-and-responsibilities-20th-edition-chapter-1-extract.ashx?la=en >

Deloitte ,’Sustainability and the Board: A Director’s Perspective’, The Wall Street Journal  (online ), 2018 <https://deloitte.wsj.com/riskandcompliance/2018/06/13/sustainability-and-the-board-a- directors-perspective/ > 

Edwards Carlyann ,’ Non-Bank Financing Methods for Startups’, Business News Daily (online ),19^th July, 2018 < https://www.businessnewsdaily.com/1733-small-business-financing-options-.html>

PTI,’ India scores 'perfect 10' in protecting shareholders' rights ‘,Times of India (online ), 2^nd November,2017  <https://timesofindia.indiatimes.com/business/india-business/india-scores-perfect-10-in-protecting-shareholders-rights/articleshow/61462480.cms >