Company Accounting 8e
John Wiley & Sons Australia, Ltd 2009
Chapter 1 – Nature and regulation of companies
1. Outline the advantages of incorporation over other forms of organisation such as partnerships.
The corporate form of organisation permits individuals to have "limited liability". This confers on shareholders a limit on their liability in the event of a winding up of the company to the amount (if any) unpaid on their shares. (S516).
In the case of a partnership no such limitation applies (unless the partnership specifically adopts limited liability) and the insolvency of one or more partners can result in other solvent partners having to contribute any losses and debts out of their own private assets.
2.Distinguish between a proprietary company and a public company.
A public company is one in which there is usually a substantial public interest in that the ownership of the company's share capital is widely spread. Public companies are entitled to raise capital through a share issue by issuing a disclosure document which entitles them to have their shares or debentures etc. listed on a stock exchange, such as the Australian Securities Exchange, to facilitate transferability.
Proprietary companies on the other hand have specific limitations in terms of the amount and restrictions on its fundraising activities.
Specific features of a proprietary company include the need to have a share capital (unlike a public company which may be limited by guarantee and not merely shares): • a requirement to have at least one shareholder and only one director (three directors for a public company) and not more than 50 shareholders (not including employee shareholders)
• not required to restrict the transfer of its shares (however it may elect to do so)
• the use of the designation "Pty" or “Proprietary” in its name
• a requirement not to engage in any fundraising activity which would require it to lodge a disclosure document with ASIC.
3.Distinguish between a large and a small proprietary company. What are the implications of being classified large rather than small?
A small proprietary company is defined in Section 45A of Corporations Act 2001, as amended, as one which meets 2 of the following three criteria: *consolidated annual revenue less than $25 million
*consolidated gross assets at the end of the financial year is less than $12.5 million #l the companies and the entites it controls have fewer than 50 employees at the end of the financial year. * These figures must be determined in accordance with accounting standards
# Part-time employees measured at appropriate fraction of full-time If these criteria are not met the company will be a large proprietary. Small proprietary companies do not have to prepare formal financial statements or have them audited. However, they must keep sufficient accounting records to allow preparation and audit of accounts if either 5% of their voting shareholders or ASIC request this to be done. Large proprietary companies, must prepare accounts in accordance with accounting standards, have them audited, send them to shareholders and lodge them with ASIC (Section 292)
4.Outline the special features of a no-liability company.
Companies engaged in the more speculative area of mining exploration are most often registered as no-liability. Such companies have NL at the end of the company name and have the advantage of being more attractive to potential investors as unlike companies limited by the unpaid amount on their shares, there is no such liability on the part of shareholders to contribute to the debts and liabilities of the companies.
5.What is the purpose of a certificate of registration?
A certificate of registration is issued by ASIC as a part of the...