Nature and regulation of companies.ppt

1、Chapter 1 Nature and regulation of companies Prepared by Emma Holmes,Nature of a company,A company is a legal entity Incorporated via registration by Australian Securities and Investments Commission (ASIC) Subject to requirements of Corporations Act 2001 A company: has limited liability (Note1) has

2、its own separate legal existence has the legal powers of a natural person has financing advantages has the right to own assets and enter contracts has the right to sue and be sued,Types of companies,Proprietary (Pty) companies Minimum of 1 member, maximum of 50 Minimum of 1 director Cannot raise fun

3、ds from the public Classified as large or small (see next slide for further discussion) Public companies (Note 1) Can invite public to subscribe for securities Can list on Australian Securities Exchange (ASX) Minimum 1 member, no maximum Minimum of 3 directors Must prepare published financial statem

4、ents and be audited,Types of companies,Large vs small proprietary companies Small proprietary companies must satisfy at least two of the following criteria: Annual gross operating revenue: $25 million Gross assets: $12.5 million Number of employees: 50 Entities that do not satisfy the criteria for c

5、lassification as a small proprietary company are classified as large (Note 1),Other types of companies,Listed corporations Public companies listed on the ASX Disclosing entities An entity with enhanced disclosure (ED) securities (Note 1) Foreign companies Incorporated outside of Australia or in an e

6、xternal territory of Australia No-liability companies Shareholders are not liable for debts of the company. Sole object of the company must be mining,Forming a company,To register a company, a person lodges the prescribed application form with ASIC On registration, the company legally comes into exi

7、stence A certificate of registration and an Australian Company Number (ACN) are issued,Forming a company,Management of the company is governed either by replaceable rules or constitution Replaceable rules “Pro-forma” rules contained within Corporations Act Deals with issues relating to directors and

8、 members, inspection of companies books and records, shares and share transfers Constitution Necessary if a company wants rules different to the pro-forma rules in the replaceable rules Public company must lodge constitution with ASIC,Administration of a company,Directors manage on behalf of the mem

9、bers Certain registers and records must be maintained Minute books records actions/decisions in meetings Financial records to enable statements to be audited Registers of members, option holders, debenture holders and charges Required to be kept at the companys registered office,Funding a company,A

10、public company can raise funds by issuing securities: Shares (equity) Debentures (debt) Options (equity) Shares represent ownership and can be issued to the public or privately placed with new investors or current shareholders Debentures represent a claim on the assets of the company and may be secu

11、red by a fixed or floating charge of the companys assets.,Funding a company,Most public issues of shares, debentures or options require a disclosure document to be issued: Written notice inviting subscription Content regulated by Corporations Act Contains issue price, terms and conditions Copy of th

12、e disclosure document must be lodged with ASIC A prospectus is an example of a disclosure document,Background to the Corporations Act (2001),The Corporations Act (2001) arose from Corporate Law Economic Reform Program (CLERP) Federal Government program, commenced in 1997 Nine discussion papers: CLER

13、P 1 CLERP 9 Resulted in wide ranging reforms including: changes to the development and application of accounting standards in Australia. establishment of the FRC and FRP reformed auditing practices,Copyright 2009 by Pearson Education Canada,12 - 12,Standard Setting: Economic Issues,Copyright 2009 by

14、 Pearson Education Canada,12 - 13,12.2 Regulation,Information as a Commodity Demand: information demanded by decision makers Supply: information supplied by firms, managers, analysts From societys perspective, firms should produce information until the marginal social benefit = marginal social cost,

15、Copyright 2009 by Pearson Education Canada,12 - 14,The Questions,Can market (i.e., private) forces of demand and supply generate the socially optimal amount of information production? If not, can regulation step in to generate socially optimal information production?,Copyright 2009 by Pearson Educat

16、ion Canada,12 - 15,A Useful Distinction,Proprietary information Information that, if released, will directly reduce cash flows Non-proprietary information Information that, if released, will not directly reduce future cash flows,Copyright 2009 by Pearson Education Canada,12 - 16,Sources of Regulatio

17、n in Financial Reporting,Professional accounting bodies Codes of ethics Discipline committees Standard setters GAAP, IFRS Securities commissions MD and Tier 2 all other preparers of GPFRs Introduces a reduce disclosure regime for Tier 2 entities. Tier 2 entities will be required to apply recognition, measurement and presentation requirements with substantially reduced disclosures.,Reduced disclosu