Flashcards in Lecture 2-Business planning and setting up companies Deck (54)
When you want to do business you have a choice of what forms of organisations?
-decide whether to do incorporated or unincorporated body= only incorporated ones have separate legal personality
-general or limited partnership
-trusts and managed investment schemes
-syndicates and joint ventures
What is a sole trader?
-set up a little business, you advertise your product and sell, you pay tax but you don't have to have a company to run a business, you get a business number a NBN
What is a general and limited partnership?
-general partnership= two or more people are carrying a bussines for profit, you can accidentaly find yourself in a partnership, liable for all debt,even those of anotehr partner personal assets, even tort debt etc, there is no separate entity so you are liable yourself
-limited partnership= it is possible when some partners only put in capital (sort of like investors) these then have limited liability but not all partners can be limited partners, the limited ones cannot take part in decision making= not that common in australia
What is a trust?
-trust= someone wanting to protect the beneficiary, like inheritance= then another person holds it to the benefit of the beneficiary,= trusts used to be very popular (as profits were taxed twice otherwise but today not anymore as new laws
What are syndicates or joint ventures?
-syndicate and joint ventures= people or companies coming together for one venture like more companies going to build railway, defined contractual obligation
How can companies be incorporated?
-either by special act of parliament (usually very big companies or universities= unimelb e.g.)
-or the Corporations Act (there are other acts as well but we don't look at those)
What things should you consider when deciding on whether to form a company or not?
-PROFIT/NON-PROFIT=sole trader, company, partnership
-cannot make profit by limited by guarantee
-you can have a company for non-profit business (charities, or clubs...)
-LIMITED/UNLIMITED LIABLITY=it is the shareholders (investors) not the company so can't get into their pockets if you are unlimited liability
-LIMITS ON SIZE= given by what type of company you choose, not really limited
-ABILITY TO RAISE CAPITAL=only companies can issue share and raise equity capital
-FORMALITIES AND EXPENSE=have to have annual fee and audit (so for really small business not that a good idea)
-AUDIT AND REPORTING REQUIREMENTS=public companies have to be audited annualy, the bigger the company the more you have to reveal to the public
-TAX TREATMENT=now only one taxation on the profits in all forms so
What are the advantages of forming a company?
-can have more than 20 members (outsize partnerships prohibited by s 115)
-may have limited liability
-may be easier to raise capital
-different tax treatment
-company law as standard form contract= you know where you stand
-flexibility=can go from small business, to a huge international corporation, as it grows the obligations change
What are the exceptions to the limit of number of members in a partnership?
-business of providing advice and services cant be a company, = lawyers, accountants
-these professions have lmits= so you can sue each partner individually etc. so the yare not in a company, can't have a company with limited liability
Does Australia have minimal capitalization?
-can have a company with one member and one dollar in assets
What are the disadvantages of forming a company?
-usually greater expense in formation and compliance
-may have to reveal information to the public
(do have to do annual compliance report, the bigger you get the more you have to reveal to the public)
What are corporations formed under the Act called?
How are companies classified?
-by reference to basis and extent of the
- as public or proprietary (proprietory= private = far more closed in circumstance of a company, more suited to a small business, more flexibility, less ability to deal in big)
Do all provisions of the Act apply to all companies?
-Some provisions of the Corporations Act apply only to certain types of companies
What is a company limited by shares?
-raditional businees, has share capital, shareholders, debt capital, most common
What is a company limited by guarantee?
- club/professional association where profit is not your goal, you can make a profit but it can never be distributed to the members of the company,
-every member taht joins, sign a guarantee that if the company fails they will pay a nominal sum (10 dollars) and that is all they are liable to, great for place where people come and go, and the company can make contracts and own
What is an unlimited company?
-partnership otherwise, but their rules won't allow them to run through limited company, so the members are liable for debt, but this way it is better than sole trader or partnership as it has legal entity so can contarct in its name etc.
What is a no liability company?
-mining companies, like games of poker, put dollar in (10 dollar share) they dig, then call another dollar, you can pay or not pay, you are not liable for any more that you've paid = only mining companies are allowed incorporated this way. not every mining company is like tis. only the startups
How are the different companies classified? PIC1
What are the rules for a proprietary company?
s113-no more than 50 members
-no fundraising activity requiring a disclosure
document under Chapter 6D(raise funds via a disclosure = can't send out a prospectus and ask whoeevre want can join, can't have strangers being members)
-Must have one or more directors – s 201A
-may be a company limited by shares or an unlimited company with share capital – s 112
What does s113 do?
-proprietary companies cannot have more than 50 members, then become public companies
What does s201A do?
-proprietary companies have to have one director or more
What are the rules for public companies?
-everything other than proprietary
companies: s 112
-Must have three or more directors: s 201A (2)
-Sometimes have different rules eg dividends – s 254W; disclosure
-Aim is greater shareholder protection
What does s 201 A (2) do?
-public companies have to have three or more directors
What does section 112 do?
-classifies public companies as everything but proprietary companies
What is a corporate group?
-Often different aspects of the business are owned or carried out by different companies in a group
-you'll have companies owning shares in other companies
What is a holding company and its subsidiary?
(related bodies corporate)
-holding company= controls the board of the subsidiary, controls more than half of the votes(=then they can appoint the board)
-controls the appointment of the board via the shareholding!
-law treats them as separate legal entities with a few exceptions
What are controlled entities?
-s50AA- you can be a controlling company even if you own less then 50% of shares, in practical influence terms.
-law treats them as separate legal entities with a few exceptions
What do you have to do when you want to register a company?
-go through registration by ASIC
-procedure in s117; ASIC form 201
-you have to choose a name that cannot be the same as one already in use (s 148)
-public companies= LTD
-proprietary companies= PTY LTD
- no liability= NL