Companies

In Australia, businesses can be owned and operated in various ways, which include the following:-

by a person as a sole trader; 
=  partnership of two or more people, who jointly own the business and share profits, but who are also all generally jointly liable for its costs and liabilities;
= by a company which owns the business, on the basis that the shareholders own the company and nominated or elected directors manage the Company for and on behalf of the shareholders - this way of operating a business is the most popular, and flexible way to manage assets and growth;
= by a trust, which holds the beneficial interest in the business, but which trust is managed by a trustee, usually a company. This structure may be ideal for estate planning and asset protection purposes.

Companies in Australia
Australian Companies are governed by the Corporations Act which is overseen and administered by the Australian Securities and Investments Commission (ASIC). Companies are considered as separate legal entities in their own right, as are the shareholders and directors of the company. An Australian company is incorporated as either a public company or a proprietary company. The greatest advantage of companies with share capital is that the liability of shareholders is, generally speaking, limited to the value or amount of shares issued to shareholders in the company. A company allows shareholders to sell their shares to new owners and change the directors, but the company and its business continue to operate unless this is otherwise changed or affected.

Types of Companies
Additional requirements apply to 'large proprietary companies' and all public companies involved in large scale enterprise, although most businesses are operated by small proprietary companies. The Corporations Act sets out the requirements that must be met before a 'large' proprietary company can be considered a public company. Public companies, in addition to all the usual things that small proprietary companies must do, generally must:
= Prepare financial reports for each financial year, which include the profit and loss statement, balance sheet and statement of cash flows, all prepared in accordance with the accounting standards;
= prepare directors' report for each financial year;
= appoint an auditor to audit the company's financial statements;
= lodge the financial statements with ASIC; and
= hold an Annual General Meeting (AGM) at least once in every calendar year.

Shareholders or Member's Rights
The Corporations Act protects the rights and interests of shareholders who are members of the company and others doing business with the company. The members usually exercise their rights through voting at the general meeting of the company. Generally speaking, the shareholders have the power to elect and remove directors, change the constitution, question the directors on the management of the company and inspect the accounts. Generally speaking, members can vote at a general meeting in person or by proxy. If the business of the company is being conducted in a manner that is unfair to a member, that member has certain remedies. Members have a statutory right to apply to the Court for remedies when the affairs of the company are being conducted unfairly or oppressively. Members may also have the right to take action, in some instances, against the directors of the company personally.

Directors
The directors of a company are responsible for managing the company's business. Generally speaking, directors can exercise all powers of the company unless the law (or a Company's constitution) provides that the power must be exercised by the members in general meeting, or by some other officer of the Company. A director of a company must ensure that he or she: 
=  is up to date as regards the general affairs of the Company;
= takes an active part in director's meetings;
=  is fully informed of how any proposed decision will affect the company's business performance;
= obtains outside professional advice, when appropriate, for an informed decision in relation to company decisions and activities.

Director's Duties
Generally, the law (Statutory and Common Law) requires directors to observe four duties to the company:
= the duty to act with care and diligence;
= the duty to act in good faith in the best interests of the company and for a proper purpose;
= the duty not to use their position to gain an advantage for themselves;
= the duty not to improperly use information obtained as a director to gain an advantage for themselves.

Although the board may delegate the performance of certain tasks to a management committee and/or the General Manager of the company, it may not delegate the performance of the director's duties which are owed to the company. If a director breaches any duties to the company, the company may sue the director for the resulting damage. Breaches may also constitute a criminal offence, depending upon the circumstances. In circumstances where there are claims that a company has been mismanaged, directors can be sued personally by creditors or shareholders of a company. Generally speaking, if a director has personal interests that may conflict with his duties as a director, then the director must disclose them at a director's meeting.

The Corporate Watchdog - ASIC
The Australian Securities Commission (ASIC) is an important source of company information. The ASIC provides the register of all companies in Australia and requires companies to maintain and lodge up to date records. The ASIC also polices breaches of the Corporations Law and assists companies and directors in company matters, through its website and telephone enquiry service. The ASIC is an independent Federal Government body established under the Australian Securities Commission Act (1998) and is required to:
= ensure fair play in business;
= prevent corporate crime;
= protect shareholders and the investor; and
=  maintain the Australian corporate systems reputation.

The ASIC is responsible for consumer protection in relation to financial services and all people engaged in the financial services industry must obtain an Australian Financial Services Licence from the ASIC. ASIC investigates complaints about the conduct of company directors, officers, auditors, liquidators or any complaints in the securities or futures markets including fraud, dishonesty or misconduct in companies. The ASIC may investigate and punish directors for the following failures:
= insolvent trading;
= the failure to disclose significant company information;
= misconduct of directors in company management;
= and requirements;
= misconduct of securities and investment advisers;
= unacceptable share acquisitions and takeovers; and
= unlawful trading in securities and futures.

Information updated by:
Navado - Chartered Accountants & Solicitors
Level 10, 309 Pitt Street SYDNEY NSW 2000
Phone: +612 9233 4048
Facsimile: +612 9233 4049
info@navado.com.au
www.navado.com.au