When it comes to running a business, there are lots of things to think about, from how you’ll set up your structure to how your finances will be managed.
Thankfully, a lot of these key matters are clearly set out in an important piece of legislation known as the Corporations Act 2001. There are a number of processes and rules to follow for things such as registering a company and appointing directors or shareholders, so it’s worth familiarising yourself with these laws before you take your first steps.
What Is The Corporations Act?
The Corporations Act is the main legislation that regulates businesses across Australia. It’s federal legislation, therefore the act is applicable throughout the entire country.
It covers basically everything, from registering your business in the early days to legally guiding its principles, functions and even the dissolution of it when it’s time.
In this article, we’ll go through some of the key aspects that the Act covers, starting from its early stages.
How To Form A Company
Forming a company is not a simple task. Often, it’s filled with an array of documentation, registration and fees that need to be covered before your company can be considered a functioning legal entity.
The Corporations Act is essentially a detailed manual on the aspects you need to cover when forming your company. For example, the type of company you have will determine the structure needed, the fees that need to be paid, the process for registering your business name and having a company name.
Once a company is registered, it exists as a separate legal entity. The company then has a right to continue to exist until and unless its existence is revoked by ASIC.
Directors play an important leadership role within any company. The Corporations Act has defined their duties and responsibilities to include keeping on top of the company’s finances, ensuring they always have the companies best interest in mind and be aware of all the undergoing as well as functions happening within the company.
There can be heavy penalties for directors who breach any of their duties under the Act.
Jenny is offered a position as the director of a small business. The recruiter who has sought her out keeps assuring her that she won’t have many tasks and will simply be watching over the business. Feeling unsure, Jenny decides to book a consultation with a lawyer to get more information about the role of directors in a company.
During their session, the lawyer provides Jenny with very detailed information about the strict rules and responsibilities befalling directors of companies as well as her potential liabilities should she accept the offer.
For example, if the business wants to make any changes to its structure or name, Jenny needs to notify ASIC by way of certain forms. In doing so, she needs to remain aware of the business’ internal activities and other details around its performance.
Relieved she sought professional advice, Jenny declines the offer from the company.
As companies are legal entities on their own, their finances- including their taxes must be handled accordingly. According to the legislation, the money the company earns belongs to the company. The companies, pays taxes usually in installments, lodges tax returns, pays GST when the turnover amount is over $75,000 and must also have its own TFN number to do all of this.
As a company is a legal entity on its own, its members have limited liability as the company takes that upon itself. Therefore, their responsibility towards the company’s debts or finances don’t extend beyond what they have invested into the company.
Limited liability can also apply to directors. As corporations are separate legal entities, the liability of directors only extends towards what they have personally contributed to the company.
Limited liability also refers to partnerships or business structures that gives a person or persons limited liability over another person’s actions. An example of this is limited liability partnerships, where two or more partners that are in business together are not liable for the negligent acts of the other partner.
The Act lists instances where limited liability may be applicable in further detail.
All shares need to be registered and marked in detail. The way shares are distributed will depend on the company. When starting out, some companies like to introduce an employee share scheme which allows employees to invest in the company.
The amount of shares you are able to issue and the limitations surrounding it depend greatly on the type of company you are running.
A business will likely have a number of documents within it that governs the functions of the business. These may range from concrete rules to those that are more general.
Governing documents will usually come in the form of something like a Company Constitution All members of the company agree to the constitution and it provides a solid point of reference for the expectations and references that are unique to the company. If you want to make changes to the constitution, companies will need to hold a general meeting and pass a resolution.
Replaceable rules on the other hand are found in the Corporations Act and have a much broader scope, applying to all companies. If you don’t have a Company Constitution, the replaceable rules can be used.
The Corporations Act governs what responsibilities a company has when they are facing insolvency. For example, companies cannot engage in trade while they are insolvent. It also contains the responsibilities of directors to avoid insolvency and acting in the best interest of the company when it does find itself under financial distress.
What Is ASIC?
The Australian Securities and Investments Commission is a key player in regulating the corporate market of Australia. ASIC is the body that enforces the laws set out in the Corporations Act. Their job is to promote fairness and transparency within the market for all stakeholders, including business owners, consumers and shareholders.
Penalties For Non-Compliance
ASIC possesses the power to oversee penalties for a failure to comply with the law. The punishments can be monetary fines and even jail time in serious cases.
Making Changes To Documents
All changes must be registered within 28 days of the change occurring, otherwise fines apply. So, as a company director, you want to stay on top of all your responsibilities and ensure you submit those forms on time.
ASIC charges a number of fees to companies. Lodging certain documents can have a fee attached, so if there is a delay a late fee can also be charged. In addition to this, ASIC also does an annual review which is important in keeping your company legally registered – a fee also applies to have the annual review conducted.
The Corporations Act plays a crucial role in every business owner’s life. It is, however, a massive piece of legislation that can be confusing and easy to get lost in. It is best to approach a professional when attempting to understand how the Act applies to you.
Our lawyers are experts in commercial and business law with a thorough understanding of the Corporations Act.
If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or email@example.com for a free, no-obligations chat.
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