The Corporations Act, 2001, sometimes referred to just as the Corporations Act is presently the largest corporations’ statute in the world. It is an act of the Commonwealth of Australia. This Act sets out the laws dealing with business entities in Australia at federal and interstate level. Although the focus of the Act is primarily on companies, it also covers some laws relating to other entities such as partnerships and managed investment schemes. All states have adopted the Act.
The Corporations Act is the principal legislation regulating companies in Australia. It regulates matters such as the formation and operation of companies (in conjunction with a constitution that may be adopted by a company), duties of officers, takeovers and fundraising.
The Act gives statutory force to many common law principles and imposes a number of additional fiduciary duties on directors of incorporated bodies. Breach of statutory duties draws penalties under the Act which range up to $220,000. Under both the common law and the Corporations Act, 2001, officers may also be required to pay compensation or to account for profits. In some cases, directors may also be disqualified from office.
The Corporation Regulations, 2001 contains all the regulations made under the Corporations Act, 2001. The Australian Securities and Investments Commission (ASIC) is an independent Australian government body that acts as Australia's corporate regulator. ASIC's role is to enforce and regulate company and financial services laws to protect Australian consumers, investors and creditors.
Salient features of Australian Corporations Act
Structure and functions of the Board
Under the Corporations Act, a proprietary company must have at least one director. That director must ordinarily reside in Australia. For this purpose, a proprietary company is a company that is registered as, or converts to, a proprietary company under this Act.
A proprietary company must:
─ be limited by shares or be an unlimited company with a share capital;
─ have no more than 50 non-employee shareholders;
─ not do anything that would require disclosure to investors under the Chapter of the Act (except in limited circumstances).
Further, a public company must have at least 3 directors (not counting alternate directors). At least 2 directors must ordinarily reside in Australia. Only an individual who is at least 18 may be appointed as a director of a company. A person who is disqualified from managing corporations may only be appointed as director of a company if the appointment is made with permission granted by Australian Securities and Investments Commission under the leave granted by the Court.
The business of a company is to be managed by or under the direction of the directors. The directors may exercise all the powers of the company except any powers that this Act or the company’s constitution (if any) requires the company to exercise in general meeting. For example, the directors may issue shares, borrow money and issue debentures. The directors of a company may confer on a managing director any of the powers that the directors can exercise. The directors may revoke or vary a conferral of powers on the managing director.
The director of a proprietary company who is its only director and only shareholder may exercise all the powers of the company except any powers that this Act or the company’s constitution (if any) requires the company to exercise in general meeting. The business of the company is to be managed by or under the direction of the director. For example, the director may issue shares, borrow money and issue debentures.
The director of a proprietary company who is its only director and only shareholder may sign, draw, accept, endorse or otherwise execute a negotiable instrument. The director may determine that a negotiable instrument may be signed, drawn, accepted, endorsed or otherwise executed in a different way.
Appointment of Directors
Special Rules for the appointment of public company directors
There are special rules for appointment of directors of public company and the appointment of directors for single director/single shareholder proprietary companies. A resolution passed at a general meeting of a public company appointing or confirming the appointment of 2 or more directors is void unless:
(a) the meeting has resolved that the appointments or confirmations may be voted on together; and
(b) no votes were cast against there solution.
Therefore, said requirement does not affect (a) a resolution to appoint directors by an amendment to the company’s constitution (if any); or (b) a ballot or poll to elect two or more directors if the ballot or poll does not require members voting for one candidate to vote for another candidate.
For aforesaid purposes, a ballot or poll does not require a member to vote for a candidate merely because the member is required to express a preference among individual candidates in order to cast a valid vote.
Special Rules for the appointment of directors for single director/single shareholder proprietary companies.
The director of a proprietary company who is its only director and only shareholder may appoint another director by recording the appointment and signing the record. If a person who is the only director and the only shareholder of a proprietary company dies; or cannot manage the company because of the person’s mental incapacity; and a personal representative or trustee is appointed to administer the person’s estate or property, the personal representative or trustee may appoint a person as the director of the company.
If the office of the director of a proprietary company is vacated because of the bankruptcy of the director; and the person is the only director and the only shareholder of the company; and a trustee in bankruptcy is appointed to the person’s property; the trustee may appoint a person as the director of the company. A person who has a power of appointment as aforesaid may appoint themselves as director. A person appointed as a director of a company as aforesaid holds office as if they had been appointed in the usual way.
Remuneration of Directors
The directors of a company are to be paid the remuneration that the company determines by resolution. The company may also pay the directors’ travelling and other expenses that they properly incur: (a) in attending directors’ meetings or any meetings of committees of directors; and (b) in attending any general meetings of the company; and (c) in connection with the company’s business. Members may obtain information about director’s remuneration.
A company must disclose the remuneration paid to each director of the company or a subsidiary (if any) by the company or by an entity controlled by the company if the company is directed to disclose the information by: (a) members with at least 5% of the votes that may be cast at a general meeting of the company; or (b) atleast 100 members who are entitled to vote at a general meeting of the company. The company must disclose all remuneration paid to the director, regardless of whether it is paid to the director in relation to their capacity as director or another capacity.
The company must comply with the direction as soon as practicable by: (a) preparing a statement of the remuneration of each director of the company or subsidiary for the last financial year before the direction was given; and (b) having the statement audited; and (c) sending a copy of the audited statement to each person entitled to receive notice of general meetings of the company.
Special Rules for single director/single shareholder proprietary companies.
A person who is the only director and the only shareholder of a proprietary company is to be paid any remuneration for being a director that the company determines by resolution. The company may also pay the director’s travelling and other expenses properly incurred by the director in connection with the company’s business.
Company Secretaries
A company other than a proprietary company must have a company secretary. However, a proprietary company may choose to have a company secretary. The directors appoint the company secretary. A company secretary must be at least eighteen years old. If a company has only one company secretary, they must ordinarily reside in Australia. If a company has more than one company secretary, at least 1 of them must ordinarily reside in Australia.
A company secretary must consent in writing to holding the position of company secretary. The company must keep the consent and must notify ASIC of the appointment.
The same person may be both a director of a company and the company secretary. Generally, a company secretary may resign by giving written notice of resignation to the company. A company secretary who resigns may notify ASIC of the resignation. If the company secretary does not do so, the company must notify ASIC of the company secretary’s resignation.
The company secretary is an officer of the company and, in that capacity, may be subject to the requirements imposed by the Corporations Act on company officers.
The Company Secretary has specific responsibilities under the Corporations Act, including responsibility for ensuring that the company:
- ─ notifies ASIC about changes to the identities, names and addresses of the company’s directors and company secretaries; and
- ─ notifies ASIC about changes to the register of members; and
- ─ notifies ASIC about changes to any ultimate holding company; and
- ─ responds, if necessary, to an extract of particulars that it receives and that it responds to any return of particulars that it receives.
A company secretary’s obligations may continue even after the company has been deregistered.
Auditors
The following may be appointed as auditor of a company for the purposes of the Act:
(a) An individual;
(b) A firm;
(c) A company.
In case of Proprietary Company, the directors may appoint an auditor for the company if an auditor has not been appointed by the company in general meeting.
The company may have more than one auditor. The appointment of a firm as auditor of a company is taken to be an appointment of all persons who, at the date of the appointment, are (a) members of the firm; and (b) registered company auditors. This is so whether or not those persons are resident in Australia. The appointment of the members of a firm as auditors of a company or registered scheme, that is taken to have been made because of the appointment of the firm as auditor of the company or scheme, is not affected by the dissolution of the firm.
A report or notice that purports to be made or given by a firm appointed as auditor of a company is not taken to be duly made or given unless it is signed by a member of the firm who is a registered company auditor, both:
(a) in the firm name; and
(b) in his or her own name.
A notice required or permitted to be given to an audit firm under the Corporations legislation may be given to the firm by giving the notice to a member of the firm.
For the purposes of criminal proceedings under this Act against a member of an audit firm, an act or omission by:
(a) a member of the firm; or
(b) an employee or agent of the audit firm; acting within the actual or apparent scope of his or her employment, or within his or her actual or apparent authority, is also to be attributed to the audit firm.
The directors of a public company must appoint an auditor of the company within one month after the day on which a company is registered as a company unless the company at a general meeting has appointed an auditor.
A public company must appoint an auditor of the company at its first AGM and appoint an auditor of the company to fill any vacancy in the office of auditor at each subsequent AGM.
An auditor holds office until the auditor dies; or is removed, or resigns, from office; or ceases to be capable of acting as auditor; or ceases to be auditor.
