HI5027: Corporations Law

1. HI5027: Corporations Law Holmes Institute: MBA Program SESSION 1

2. Summarising this session By the end of this Session, you will be able to understand the following topics: The form, architecture, and history of companies; and The scope and operation of company law.

3. About Companies • Introduction to the subject • Companies as a form of business organisation • The architecture of companies • Historical development of companies

4. Companies • The dominant form of business organisation • Over 1.92 million companies in Australia • Created through a process of registration under statute – an “artificial legal person” • What makes them important? They are ‘separate legal persons’ with special attributes or features

5. What is the purpose of companies? • Traditionally, a means by which a large group of people with capital and management resources could come together to conduct an enterprise on an ongoing basis • Now also widely used for small business and by individuals – particularly to take advantage of limited liability

6. Small and large companies • Most companies are small businesses • About 2,200 companies are listed (Listed companies are companies in which you can buy or sell shares through the ASX)

7. The architecture of companies • Capital structure • equity capital (shares) • debt capital • Management structure • board of directors and other officers • members (shareholders)

8. Capital structure • Companies have one or more members (also called shareholders) who have invested money by subscribing for shares (or acquiring shares from an existing shareholder) • Companies often also have creditors

9. Management structure • Board of directors manage the business (in large companies, they may delegate day-to-day management to CEO and other executives) • Directors are not always members • Members have a right to vote on some issues but usually not on general management decisions

10. The historical development of companies • Corporations aggregate as separate legal persons • Joint stock as a means of financial participation • Incorporation as of right from mid 19th century • Limited liability from mid 19th century

11. Important developments for small business • Distinction between public and proprietary companies • Salomon’s case • Sole director/shareholder companies

12. Company law • Scope and operation of company law • Sources of company law • Regulation of companies

13. What is company law? • General term used to describe the legal rules governing: • formation and termination of companies • characteristics of companies • relationships between participants in companies (such as members and officers) • aspects of companies’ dealings with outsiders

14. Purpose of company law • Has both facilitative and regulatory functions • Facilitative in that it provides the legal framework for people to deal with each other • Regulatory in that it controls behaviour to achieve social ends

15. Purpose (cont) • Aims/purposes include: • investor protection • commercial stability and consumer confidence • balancing competing interests • providing certainty – including through standard form rules • Ask yourself throughout the subject – does the law achieve these aims?

16. Operation of company law • Operates as a source of private rights between individual parties (eg between members of a company) • Breach of provisions of the Corporations Act can also be a criminal offence or subject to other State sanction

17. Sources of company law • Where do I look for any rules that may govern a proposed corporate action? • Examples: • electing new directors • borrowing money from a bank • bringing in new investors

18. Sources of rules (cont) • Corporations Act • Case law • Other sources • Corporations Regulations, ASIC Act, ASIC exemptions, modifications and guidelines, accounting standards, ASX Listing Rules (for listed companies)

19. Corporations Act • Australia’s company law statute • Came into effect on 15 July 2001 • Until 2001, Australia’s corporations law was made up of separate State and Territory Acts • Also covers financial services and markets regulation – see Chapter 22

20. Case law • In a common law system, creates binding legal rules • May apply: • in interpreting rules contained in the Corporations Act • in imposing additional rules • Doctrine of precedent • Consider – the significance of “the facts”

21. Australian Securities & Investments Commission • Responsible for forming, terminating and regulating companies • Part of the Commonwealth Government • Treasurer is the responsible Minister • Five Commission members and a staff of approximately 1,600

22. ASIC (cont) • Objectives set out in s1(2) of ASIC Act • A wide regulatory remit, including: • Registrar of companies • Financial services and credit regulator • Securities and markets regulator • As corporate regulator, responsible for: • registration of companies and collection and dissemination of corporate information • surveillance, investigation and enforcement

23. Australian Securities Exchange • Usually referred to as ASX • A private, for profit organisation that provides an organised market for securities that are listed on it • Companies can choose to “list”, allowing their securities to be traded in that market

24. ASX (cont) • Contract with ASX to comply with the Listing Rules • ASX monitors companies, enforces the Listing Rules and co-operates with ASIC • Continuous disclosure • Corporate governance • 2011 competition for market services