Regulatory Framework

Regulatory FrameworkWhat is a company?A company is an artificial entity recognised by the law as a legal person with its own rights and liabilities. It is regarded as an entity that is separate and distinct from its owners (its shareholders or members) and managers (its directors and officers).The Corporations Act 2001 (Cth) definition of a company include a company registered under the Act. A company is one type of corporation: s 57A Corporations Act 2001 (Cth).

The fact that a company is regarded as an entity separate from its shareholders, directors and others means that the company may own property, enter into contracts and sue and be sued in its own name. It has the same legal capacity and powers as a human being. It is able to engage in any business or activity and may acquire and exercise rights in the same way as an individual.Limited liability is an important characteristic of companies, as it means that shareholders are not personally liable for their companies debts. The shareholders' liability is limited to paying the issue price of the shares that they own (this includes any unpaid amount on partly paid shares).There are three main sources of rules that regulate companies: Legislation, such as the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth); Case law; and the Constitution of each company, which sets out the rules that regulate their internal management. The Corporations Act 2001 (Cth) makes a formal distinction between ownership and control of companies. Companies are required to have shareholders (also known as 'members') who, in a non-legal sense, are regarded as the owners of the company. The shareholders contribute capital by paying the issue price on their shares and may receive dividends if the company's assets exceed its liabilities and the excess is sufficient for payment of the dividend. The Corporations Act 2001 (Cth) and company constitutions give shareholders significant rights, for example: the right to receive the company's audited financial reports; the right to attend, speak and vote at the company's annual general meetings. Every company must also have directors who are collectively referred to as a 'board'. Company constitutions usually give directors the exclusive power to control management of the company's business. Directors control the management of the company, and therefore subject to strict fiduciary and statutory duties, such as directors are required to exercise their powers in the best interests of the company and its shareholders.The Corporations Act 2001 (Cth) draws a distinction between public and proprietary companies. A company must be one or another. There are significantly more proprietary companies than public companies. The regulation of proprietary companies is designed to suit the needs of companies with small numbers of shareholders.The largest public companies choose to list their shares on the Australian Securities Exchange (ASX), which operates the main Australian stock market in which shares of listed companies can be traded. An active stock market enables investors to easily trade listed shares and as a result listed companies have the ability to raise very large amounts of capital.

History of Company LawEarly Companies LegislationIn order to better protect investors, bring greater certainty to the operation of joint stock companies and encourage their formation, a series of Acts were passed in England between 1844 and 1856 that remain the foundation of modern Australian company law. These Acts made a clear distinction between companies and partnerships by providing that all undertakings of more than 20 persons were required to incorporate as companies. It was open for any enterprise that met the statutory requirements to incorporate and be registered as a company. Limited liability was permitted after legislation was passed in 1855 and 1856. The various statutes dealing with companies were consolidated in the English Companies Act 1862 (UK), which established all registered companies as separate legal entities distinct from their shareholders.By the late 19th century, many family businesses and partnerships used the companies legislation mainly to gain the advantage of limited liability. These businesses were usually conducted by an individual or a small number of partners with family members, friends or employees making up the required minimum number o shareholders.