Reading time: 6 minutes

Australian company law used to be a complex and arduous landscape. Historically, individual States and Territories had their own corporate lawmaking powers, creating divergent approaches, unnecessary expenses and complications for companies that traded across borders. The only way forward was a national approach. Yet, the High Court decided (New South Wales v Commonwealth (1990) 169 CLR 482) that the Commonwealth did not have the power to make laws for companies’ formation only for those which had commenced trading. Luckily, the current Corporations Act 2001 (Cth) (the Act) sets a uniform approach to corporate law in Australia. Now, more than 20 years since its inception, this article will discuss how the Act came into force and outline key areas of importance for corporations.

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.

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.

Failure to comply with any of their duties exposes a director to personal liability, including civil and criminal penalties and liability for damages.

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’s business lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is the Corporations Act?

The Act is a piece of federal legislation which governs company law in Australia. It applies equally in all Australian States and Territories.

What areas does the Act govern?

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.

Is the Act the only legislation that governs companies in Australia?

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.

Webinars

Key Considerations When Buying a Business

Thursday 11 November | 11:00 - 11:45am

Online
Learn which questions to ask when buying a business to avoid legal and operational pitfalls, so you can hit the ground running. Join our free webinar.
Register Now

Innovation Nation: How to Make the Most of Australia’s Business Innovation and Investor Visas

Thursday 18 November | 11:00 - 11:45am

Online
Want to expand your business into Australia? You need the right visa. Register for our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer