Characteristics of Companies
Process to Incorporate a Company
According to the Corporations Act, any person may lodge an application to ASIC to register a company. The minimum number of people needed to form a company is one.
The Promoters, who are a group of people interested in forming a company and who are prepared to take up some shares when the company is formed, go through a process which is detailed below.
Step 1: Form 201
The Promoters must fill in Form 201 available from ASIC, and then submit it to ASIC together with the prescribed fee.
From 201 must contain the following information:
The proposed company name
The type of company it is
Details of registered office and principal place of business (if different to the registered office) - Details of the directors, secretary, and initial shareholders.
Whether the company will be governed by Replaceable Rules from the Corporations Act, the Company's Constitution, or a combination of both.
Before the form is completed, several things need to be addressed: The company name needs to be agreed upon by the promoters.
Declaration of Consent must be obtained from the directors, secretary, and initial shareholders. The declarations are NOT required to be lodged with ASIC.
A decision regarding the company's internal governance must be made - whether the company requires a Constitution or will adopt the Replaceable Rules will be discussed.
A company must adopt a document that regulates the internal affairs of the company. This document may be the Company's Constitution or the Replaceable Rules outlined in the Corporations Act.
The replaceable rules are set out under the Corporations Act, and consist of a set of basic rules that govern the internal affairs of a company, such as:
Powers of Directors
Remuneration of directors
Calling director's meetings
Director calling member meetings.
Voting at member meetings
Inspection of company books by a member.
Transmission of shares upon death of a member
Capitalisation of profits
A Constitution regulates the internal affairs of a company and can be used to displace, modify, or add to the replaceable rules provided under the Corporations Act.
This provides the company discretion as to conduct activity under both Replaceable Rules it is happy to adopt and its own Constitution. If the company decides to use its own Constitution to govern the relationships with shareholders, then this constitution must be lodged with the Application to ASIC.
Step 3: Registration
A Certificate of Registration and Australian Company Number (ACN) is issued once ASIC approved the Application.
From now on, the company is incorporated and exists as a separate legal entity, attaining the right to enter contracts and attain property in its own name, sue, be sued and pay taxes on profits.
Duties of Directors
Company administration is left in the hands of Directors appointed by the shareholders. These directors set corporate policies, and appoint a managing director (CEO) to manage the company's day-to-day affairs. The directors have a responsibility to the shareholders to run the company in best interest. Directors have the duties of protecting the rights of their shareholders, setting salaries, recommending and declaring dividends, authorising long-term borrowings, issuing additional shares, overseeing major capital projects and reviewing the system of internal control.
Under the Corporations Act, Directors must:
Act in good faith
Act in the best interests of the company
Avoid conflict of interest
Exercise care and diligence
Ensure the company does not trade while insolvent
Report to and help the liquidator in the event of winding up the company.