UNIT 4

Question 1

Company def

Answer 1

company is an organisation established under the Corporations Act 2001 as a separate entity
- can enter into legal agreements in its own name
can own property
can sue and be sued in its own name

Question 2

Purpose of Coporations Act 2001

Answer 2

Corporations Act 2001

Legally establishes companies

Defines types (e.g. public, proprietary)

Sets directors’ duties

Requires external audits for public companies

Requires financial reports of public & large proprietary companies to follow AASB standards

Question 3

What is company directors and their powers

Answer 3

Directors & Management

Shareholders elect directors to act on their behalf

Directors appoint managers for daily operations

Powers of Directors:

Issue shares

Borrow money

Appoint/dismiss senior managers

Question 4

Duties of directors

Answer 4

Duties of Directors

Exercise care and diligence

Act in the company’s best interest

Don’t misuse position for personal or others’ gain

Don’t misuse information for personal or others’ gain

Don’t allow trading while insolvent

Question 5

Company limited by shares

Answer 5

Company Limited by Shares

Shareholders’ liability limited to unpaid amount on their shares

Must include “Limited” or “Ltd” in the name

Can be proprietary or public

Question 6

Propiertary Company

Answer 6

Proprietary Company (Pty)

Can’t raise money from the public

1–50 non-employee shareholders

At least 1 director

Must include “Proprietary” or “Pty” in its name

Question 7

Public company

Answer 7

Public Company

Not a proprietary company

Min. 1 shareholder, no max limit

Can raise capital from the public (shares, debentures)

Must have at least 3 directors

Name must include “Limited” or “Ltd”

Question 8

What is a propectus

Answer 8

Prospectus
A document issued by a public company to invite the public to buy shares or debentures.

Must include all info needed for investors to make an informed decision.

Question 9

Small proprietary company

Answer 9

mall Proprietary Company Criteria

Revenue < $50 million

Gross assets < $25 million

< 100 employees

Question 10

What does a propectus include

Answer 10

Contents of a Prospectus

Financial info (e.g. assets & liabilities)

No. of shares offered & offer price

Key facts about directors

Application form for investors

Must be lodged with ASIC

Question 10

Large proprietary company

Answer 10

2 outta 3 The total Revenue for the financial
year is $50 million or more
● The total gross assets is $25 million or
more
● Has 100 employees or more

Question 11

Advantages of Companies Limited by Shares

Answer 11

ASX-Listed Public Companies – Key Points

Can raise large capital by issuing shares

Can borrow large amounts from the public

Shareholders have limited liability protection

Company has continuous (perpetual) existence

Anyone (even without business skills) can become a shareholder

Shares are easily sold (liquid investment)

Question 12

AGM

Answer 12

Annual General Meeting (AGM) – Key Points

Required for all public companies with >1 shareholder

Shareholders meet directors yearly

Shareholders can question company performance (past 12 months)

Elect directors and approve final dividend (if required)

Question 13

Company Income Tax

Answer 13

Company Income Tax – Key Points

Company pays tax on its profit

Tax is calculated yearly and recorded as an expense in the profit & loss

Expected tax also shown as a liability in the balance sheet

Question 14

Preliminary Expenses

Answer 14

Costs to form a company (e.g. ASIC fees, legal fees)

Recorded as an expense in the profit & loss ledger

Question 15

Company Management

Answer 15

Company Management Rules – Key Point

Company rules are in either replaceable rules or the company’s constitution

Question 16

Replaceable Rules

Answer 16

Replaceable Rules – Key Points

Optional company management rules (alternative to a constitution)

Cover:

Appoint/remove directors

Shareholder access to accounting records

Voting procedures at shareholder meetings

Authority to approve dividends

Question 17

recording of shares , preference shares and ordinary shares

Answer 17

Preference vs Ordinary Shares

Preference shares: Right to a fixed dividend

Ordinary shares: No fixed dividend, no special rights

Question 18

Rights of ordinary shares

Answer 18

Repayment of capital after creditors (if company is liquidated), Vote at shareholder meetings & elect directors, Receive annual financial report, Receive approved dividends

Question 19

Reserve meaning

Answer 19

Reserves – Key Points

Equity items other than share capital

Types:

General Reserve

Asset Revaluation Reserve

Shown under “Reserves” in the Balance Sheet (excluding Retained Earnings)