Corporations Act
- February 10, 2023
- 10 min read
Overview:
- What you need to know about
- What is the Corporations Act?
- What areas does the Corporations Act 2001 cover?
- Who regulates the Corporations Act?
- When do you need to check with the Corporations Act?
What you need to know about
No doubt as a business owner you’ve heard of the Corporations Act, especially during decision-making when incorporating your business.
At over 3,700 pages (and that doesn’t include Regulations and other legislative instruments!) of legal speak, do you need to know about the Corporations Act?
Really?
You don’t need to know the law or be a lawyer to understand the Corporations Act.
We’re going to home in on the parts you need to know about and how it affects corporations’ rules and the governing of your business.
What is the Corporations Act?
The Corporations Act 2001 is federal legislation which outlines the laws and regulations for how businesses will operate in Australia.
As a result, every company in Australia must follow the law, regardless of the State or Territory your company is located.
You will most likely be first introduced to the Corporations Act when incorporating your business.
The ASIC Act provides corporations rules about how you will govern and operate your business, it will outline the laws of how your business will pay its shareholders and how to dissolve your company should you wish to close it.
What areas does the Corporations Act 2001 cover?
We can guess you probably don’t really want to read the Corporations Act, do you?
Just quietly, we don’t either!
So, let’s look at a summary of the ASIC Act that business owners should know about.
The key parts of the Corporations Act 2001 include:
Company Formation
This is important when starting proprietary companies or public companies and outlines how to structure and register your business.
Shares
Rulings on share structure – how you can allocate shares to owners of the company, the number of shares required by business structure and paying dividends.
For example, the ACT states that a public company’s share structure can have an unlimited number of shares whereas a Pty Ltd company must have at least one shareholder who is over 18 years and an Australian resident.
The ACT also outlines how shareholders are covered whether they are limited by shares, unlimited or by guarantee.
Shareholder Voting Rights
The Corporations Act outlines how shareholders can vote. Most companies express that each shareholder has one vote.
There are rules around how decisions amongst shareholders are made such as an ordinary resolution or a special resolution.
Corporate Governance
Each company must have a company constitution following legislation on how they will operate.
If there is no constitution a company can opt for replaceable rules – or even a combination of these two.
ASIC has tabled a simplified outline of the replaceable rules here to make it a whole lot easier to understand.
Director Duties
The ACT defines the minimum number of directors you must have for public and private companies.
As well as, ensuring the director/s act in the best interest of the company, such as not part taking in insider trading, or insolvent trading, and keeping updated and accurate company books.
Taxes
As a legal entity, the law states that a company must lodge and pay all taxes owed.
Insolvency
The Corporations Act outlines the framework for companies approaching and entering insolvency.
This law defines the different types of liquidation, how it is to wind up the company, restructuring and the duties of the director during this time.
Takeovers
It regulates takeovers, ensuring they are done in an informed and competitive market, timely and shareholders are treated equally.
Who regulates the Corporations Act?
The Australian Securities and Investments Commission (ASIC) regulates the Corporations Act and ensures all companies are following the legislation.
ASIC set the penalties for non-compliance and breaches of the Corporations Act through fines and jail for offenders.
When do you need to check with the Corporations Act?
You will need the Corporations Act –
- When incorporating your company, it provisions how you want to operate your company
- When registering your company
- During insolvency and how your business should behave
- For the law and process of restructuring and liquidating small eligible businesses
Ready to register your business, we’re ready for you
If you’re feeling courageous, you can have a look at the whole Corporations Act 2001 here.
Or you can call Sleek (a much less stressful idea, we think!), who can help you navigate the law and parts of the Corporations Act you do not understand. Call our accounting team on +61 2 9100 0480 and we can direct you to the right place.
