Setting Up A Proprietary Limited Company In Australia

Legal and professional advice

Question:

Prepare a constitution of X-Mass Proprietary Limited Company management rule.

Whenever a Company or any business structure plans to get set up, first of all it should be noted that whether it suits the need of the individual or not. Legal and professional advice needs to be taken about all possible circumstances.

The person starting a Company should understand all the legal obligations that are applicable to the Company.

When a Company gets registered as an Australian company, the company once registered as an Australian company, can conduct business throughout Australia without any need to get itself register in individual states and territories.

Procedure to set up a Proprietary Limited Company

A proprietary company that is to be set up must contain the word 'Proprietary' or the abbreviation 'Pty' in its name and the name selected should also show the liability of its members, the members' liability will be considered as unlimited, if the name doesn’t contain any word related to liability. 

For example: The company name must end with the word 'Proprietary Limited', if the liability of the company's members is limited to the amount unpaid on their shares,.

The company name will only end with the words 'Proprietary', if the liability of the members is unlimited.

Will choosing the name of the Company, it is to be seen that the name chosen is not already registered to another Company or business.

The name applicability needs to be checked so ensure that whether the name is available or not.

While deciding the name of the Company following words or phrases should not be used without the prior approval of specified Minister or government agency.

Words that cannot be used include:

• building society
• trust
• university
• chamber of commerce, and
• chartered

The name suggested should not also build a misleading connection with government or with the royal family or an ex-servicemen's organisation.

An application needs to be files for registration of the Company. Form 21 needs to be filed by the applicant for this purpose. The form needs to filled along with the application fees to Australian Securities and Investments Commission.

When the application goes to the department with the correct fees, an ACN is issued to the Company. Once the ACN is issued the Company comes into existence and the same remains in existence till the company is deregistered. When the Company gets registered, in two working days, an eight digit unique number is issued to the company, this number can be used to see the company records, lodge forms and receive annual statement online.

As per section 117 of ASIC, related to registering a company, a person must lodge an application to ASIC.Application form should contain following:

1. Proposed company type which is to be registered
2. Proposed company’ name.
3. Every person who consents to be the member, their name and addresses.
4. Family name and date of birth of all those persons who decides to be the director.
5. Family name and date of birth of all those persons who decides to be the company secretary.
6. Each person who has given consent in writing to become the director or CS of the company, their address.
7. Company’s Proposed registered Office address.
8. Company ‘s proposed principal place of business
9. State or Territory Jurisdiction wherein company is taken to be registered (CCH Australia Limited, 2011)

At times of filling up the application form under section 20 all the above points needs to be complied with.

A proprietary limited company has to get an address registered in the form 201. However, a company can get the address of a registered office changed.  As per section 142, this requires a notice to be lodged not later than 20 days post change occurs in prescribed format. Notice takes effect later off:

1. 7^th day after the notice or
2. Day Later to notice date as defined in the notice as a date from which notice is to be effective.

As per Section 134, at times the company need to be registered; they must consent how the company will be internally governed.

• Replaceable rules: - Under replaceable rules, the company does not required to have its own written constitution. Under this rules, the constitution need not to be kept up to date with the required law, even in the case that the replaceable rules are amended. As per section 135 (1) and Section 135 (2) these rules refer to those rules which automatically apply on the Company and they can be replaced and modifies though a specifically adopted written constitution.

This rule governs matters like:

1. The appointment of Directors
2. The powers of the directors
3. The regulations related to directors meetings
4. The regulations related to members meetings
5. Any special rights for special class of shares
6. Regulations elated to transfer of shares

• Own constitution: A constitution is a written document. A Company can go for its own constitution as well. At times of registration of the Company, Proprietary companiesdo not have to lodge their constitution. Even it is not mandatory for the Proprietary companies to go for constitution.

• A combination of both

A company constitution includes the following:

1. Name of the Company: The name which is been registered with ASIC.
2. Man Object: The management needs to mention the main object of the company, which was in consideration at times of forming the Company.
3. Subsidiary’s objects: In this column the company needs to disclose the secondary objectives of the company. These objectives are not as important as the main object. The Company can have many subsidiary objectives but will have only limited main objects.
4. Powers: The Company needs to brief its powers in the column, which it possesses to achieve the main objects.
5. Rules: These refer to the rules of the organisation. For e.g. Re membership, executive committee, meetings including AGM etc.
6. Income and property: The Income and property of the company should be used for aiming towards the main object of the Company.
7. Winding up: In case of winding up of the company and surplus left after meeting all the liabilities and debts will not be distributed among the members. The surplus portion will be allocated to some other charitable institution or institutions having its main objects in line to the main objects of the Company
8. Addition alteration or amendments: No addition, alteration or amendments in the constitution shall be allowed to be made without the approval of the Revenue Commissioners.
9. Keeping of accounts: Annual audited accounts need to be maintained with the Revenue Commissioners.

The constitution and the replaceable rules governing the company internally, will affect the contract between the members, between the company and the directors and between the Company and the members.

As per the provisions of law, in case of the proprietarycompany where only one person is the sole director and the shareholder o the company, then in this case, replaceable rules will not apply. However, in this case section 201F and 198E will apply.

A company by passing a special resolution can change or modify the constitution.  Resolution is called as special, when the same is being passed by 75% of the eligible voters.

If the company decides to issue preference shares, then firstly the company needs to update the constitution. This updating is possible either by passing a special resolution or by setting it out in the constitution.

It includes the followings;

1. Repayment of capital;
2. Participation in surplus assets and profits;
3. Cumulative and non-cumulative dividends;
4. Voting rights ; and
5. Priority of payment of capital and dividends in relation to other shares or other classes of shares.

As per section 169, every company that has been registered in the law, need to maintain a shareholder register. The shareholder register will contain the following information:

1. Name and address of the member along with the date on which he became the member of the Company.
2. Total numbers of shares allocated to the member.
3. Total numbers of shares held by the member.
4. The class of shares held by the members
5. Information whether the shares are fully paid off or not.
6. Total amount paid on the shares.
7. Total amount unpaid on the shares.

As per the provisions of law if any changes are required to be made in the share register,  then in this case, the proprietary company will sent the notice to the ASIC within the time frame provided in section 178D.

So, in the case provided, if the proprietary Limited company decides to issue new preference shares then firstly necessary changes will be required to be made in the constitution and then the member register will be updated and necessaryintimations will be sent to ASIC.

References:

• CCH Australia Limited, 2011, “Australian Corporations & Securities Legislation 2011: Corporations Act, 2001, ASIC Act 2001, related regulations”; Available at: https://books.google.co.in/books?id=uMspq6WTSIMC&dq=Sec+117+ASIC&source=gbs_navlinks_s
• Guidance about replaceable rules and written constitutions – Proprietary Companies; Available at: https://www.incorporator.com.au/l3/30b_01_written_constitutions_and_replaceable_rules_in_the_context_of_a_proprietary_pty_company.asp