Corporate Accounting

CORPORATE ACCOUNTING

Week 1 Tutorial Questions

Question 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 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.

Question 5.

What is the purpose of a certificate of registration?

A certificate of registration is issued by ASIC as a part of the registration procedure. Providing the company complies with S117 of the Corporations Act, ASIC will:

 give the company an ACN Number

 register the company

 issue a certificate that states the company's name, ACN No. etc.

Once registered, the company is capable of performing all the functions of a corporate body.

Question 6.

What are replaceable rules and how do they differ from a constitution?

Replaceable rules are the set of internal rules (contained in the Corporations Act) governing the conduct of its operations between the company and its member directors and between members themselves [see example of such rules in ch 1].

If the rules are not adopted by the company then they must draw up a constitution which will cover much of the same issues covered by the replacement rules but may be extended or modified by the promoters of the company.

Question 7.

Outline the main features and purpose of a prospectus.

A prospectus contains all the information necessary for investors to make an informed assessment of the company's future prospects and other relevant matters including:

 rights and liabilities attaching to securities

 financial position, performance and prospects of the body issuing the securities

 interests of each director, proposed director, promoter, stockbroker and their professional advisers in any property acquired or proposed to be acquired with the funds derived from the securities issue.

 whether the securities issued will be quoted on a Stock Exchange.

Question 8.

In administering a company, the Corporations Act requires the keeping of various books, registers and records. Outline these and briefly discuss their content.

There are a range of records required to be maintained by a company including:

 minute books

 financial records

 register of members

 register of option holders

 register of debenture holders

 register of charge

Question 9.

Outline the differences between ordinary shares, preference shares and debentures.

Ordinary shares attract no fixed rate of dividend, carry voting rights and may participate in surplus assets and profits of the company - they represent ownership of x% of the company.

Ordinary shares are classified as equity.

A company has the right to issue preference shares, but may only do so either if there is a statement in its constitution setting out the rights of these shareholders or if these rights have been approved by a special resolution of the company.

Not all preference shares are the same. Classification of preference shares as equity or liabilities depends on the rights and features of the shares - judgment is required re which classification is appropriate.