Summary
- The Corporations Act 2001 is the main law governing companies in Australia, setting out how they are formed, operated and regulated.
- It covers key areas such as directors’ duties, shareholder rights, company governance, fundraising and insolvency.
- The Act applies nationally and creates a consistent legal framework for companies across all states and territories.
- This guide explains the Corporations Act for business owners in Australia, outlining core rules and obligations, prepared by LegalVision, a commercial law firm that specialises in advising clients on corporate law and governance.
- It provides a practical explanation of compliance requirements, company structure and the legal responsibilities of directors and shareholders.
Tips for Businesses
Understand your obligations under the Corporations Act, especially directors’ duties and reporting requirements. Maintain accurate records and follow governance rules. Review your constitution and shareholder arrangements regularly. Non-compliance can lead to penalties or personal liability, so seek legal advice if you are unsure about your responsibilities.
The Corporations Act 2001 (Cth) is the primary legislation governing how companies are formed, operated and regulated in Australia, setting out the rules for directors’ duties, shareholder rights and corporate conduct. It provides a uniform national framework that applies across all states and territories and underpins how businesses are structured and managed. This article explains what the Corporations Act is and how it affects your business.
The Corporations Act
Each State and Territory has adopted the Corporations Act. As a result, there is now a single, federal piece of legislation that sets out the laws dealing with companies (as well as other types of entities, such as partnerships and managed investment schemes). No longer can the States and Territories meddle with their local laws. Likewise, the Ministerial Council must approve each amendment to the Corporations Act. Ultimately, this ensures uniformity across Australia regarding corporations law.
The Corporations Act brought the Australian company law landscape to a new age.
What Does the Corporations Act Govern?
At a whopping length of over 3,700 pages, the Act is quite far-reaching regarding the areas of corporations law it governs. The following sections discuss the key components of the Act and how they regulate what Australian companies can and cannot do.
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Company Formation
The Act outlines what type of companies you can register with the Australian Securities and Investments Commission (ASIC). When setting up your company, you must decide whether the company will be a proprietary (private) or public company. Likewise, you must also nominate the liability of your shareholders as one of:
- unlimited with share capital;
- limited by shares;
- limited by guarantee; or
- no liability.
The Act contains the laws that govern each of these entities. Therefore, it is essential to familiarise yourself with the sections applicable to the company you want to run.
Shares and Voting
Additionally, the Act dictates that all Australian companies must have a share capital. Likewise, the minimum number of shareholders for both public and proprietary companies limited by shares is one. The Act also regulates the number of shareholders that companies can have. For example, a proprietary company can have a maximum of 50. No such limit exists for public companies.
There are also various rules regarding shareholder voting rights. For example:
- by default, shareholders have one vote per share. However, you can amend this if the company decides;
- directors must convene a meeting if shareholders with over 5% of voting rights request that they do so;
- most decisions require the passing of an ‘ordinary resolution’. This is when over 50% of shareholders who are present and entitled to vote approve; or
- some instances (like, amending the company constitution) require the passing of a ‘special resolution’. This is when 75% of the shareholders who are present and entitled to vote approve.
Corporate Governance
The Act flooded the corporate governance space with changes. For example, previously, a company was required to have a memorandum and articles of association to establish the company’s operation. Now, a single (and optional) document – the company constitution – is all that is needed to document a company’s corporate governance framework.
Additionally, the Act’s replaceable rules can govern companies that choose not to adopt a constitution. Moreover, these rules automatically apply if a company’s constitution is silent about a particular issue covered by one of the 39 replaceable rules. Therefore, it is now possible to govern your company through a combination of the replaceable rules and your company constitution.
Directors’ Duties
Under the Act, a proprietary company must have at least one director, of which at least one must be resident in Australia. Likewise, it is not necessary to have a secretary.
Additionally, a public company must have at least three directors, whereby two must be residents in Australia. They must also have at least one secretary, who must be resident in Australia. Further, every director must comply with the directors’ duties found in the Act, which operate to ensure a director is acting in the company’s best interests. Some examples are the duty to:
- act in good faith;
- avoid and disclose conflicts of interest; and
- avoid insolvent trading.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
Takeovers
The Act directly regulates takeovers. These rules are detailed and technical and operate to ensure:
- the takeover occurs in an informed, efficient and competitive market;
- shareholders subject to a takeover proposal have adequate time to consider their options; and
- target shareholders are treated equally under any takeover proposal.
Insolvency
If a company is in financial distress and is approaching a position where it cannot pay its debts when they fall due, it may be approaching insolvency. Luckily, the Act contains the insolvency framework in Australia, governing how the company will proceed. Some of the most critical aspects of insolvency law include:
- the different types of liquidation, including how to commence winding up;
- restructuring options, such as voluntary administration; and
- directors’ duties and liabilities during insolvency.
Key Takeaways
The Corporations Act is a comprehensive and multifaceted piece of legislation with a long history. It is ultimately the primary document for governing corporations in Australia. Whilst being an extremely hefty document, it solves the tension between individual State and Territory governments who previously had vastly different approaches to company law. Today, the Act sets and regulates a uniform approach to corporations law, regarding company formation, governance and directors duties.
For more information on your corporate governance obligations under the Corporations Act, contact LegalVision. LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced business lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
The Act is a piece of federal legislation which governs company law in Australia. It applies equally in all Australian States and Territories.
To name a few, the Act governs company formation, shareholding and voting rights, directors duties, takeovers and corporate insolvency. It is the primary document that controls how companies run.
Yes and no. Previously each State and Territory had its own framework. However, as of 2001, the Corporations Act is the primary legislation for company law in Australia. However, other acts contain relevant laws that continue to apply to companies, such as tax law.
Yes, the Act regulates companies from formation through to governance and eventual insolvency or winding up. It provides the legal framework for each stage of a company’s existence.
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