Company Law 101
Must-Know Series: Company Law 101
A company is a creature of the capitalist legal system. Compared with a sole trader, a company has several special characteristics:
1. A company exists as a separate legal person. Unlike a natural person, a company—in law a “person”—can enter into contracts, open bank accounts, lease premises, and carry on most activities a sole trader can.
The clearest demonstration of a company’s separate personality appears in civil litigation: if no personal guarantee is given, only the company itself (not its directors or shareholders) may sue or be sued. This limited-liability feature is a key reason businesses adopt the corporate form.
2. Company ownership is divided into shares, the price of which each company sets—many Australian companies issue shares at AUD 1 each. Shareholders’ influence over corporate affairs generally corresponds to their shareholding, though minority shareholders are not necessarily powerless; recent minority oppression cases have attracted much attention.
When a company repays its debts, shareholders usually are not personally liable beyond the amount they invested in their shares. This contrasts sharply with sole traders, who may have to use personal assets to satisfy business debts and risk personal litigation.
Major corporate decisions require formal shareholder meetings convened according to statutory procedures. If shareholders already have disputes, calling a general meeting on sensitive topics can spark conflict and often requires legal advice.
3. A company’s internal structure can be complex, with various officers—directors, secretaries, and other officers—requiring close collaboration for effective governance.
Directors and secretaries need not be shareholders but wield significant powers under the Corporations Act. Beyond day-to-day management, directors oversee financial reporting and sign contracts, serving as the company’s public face.
Directors generally benefit from limited liability, but in certain circumstances they may incur personal liability: if the company fails to remit employees’ PAYG withholding or superannuation; if it trades while insolvent; or if a director personally guarantees company debts. The Act imposes many further duties on directors beyond this summary.
Company law is a highly technical field. Gaining a basic understanding before incorporating can be invaluable. This article covers only foundational concepts; in-depth study would require many more pages.
I advocate “prevention over cure.” Before launching a company with partners, discuss governance structures, future directions, and consider a shareholders’ agreement to prevent disputes.
See you next issue.
Editor’s Note:
Mr Ren is originally from Guangzhou, China and has practised for many years. He is now the Principal Lawyer at LJR Legal.
Embracing modern technology, speaking the languages of our Chinese community, and serving as your dedicated legal advisor has been Mr Ren’s mission throughout his career.
As a full-service practitioner, in addition to his deep expertise in Family Law, Mr Ren also specialises in:
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Disclaimer: This column provides general legal discussion only. The text, images, and any content herein do not constitute legal advice, nor does Mr Ren intend by this column to advise its readers. If you require advice tailored to your circumstances, please arrange a confidential one-on-one consultation with Mr Ren. Neither this column, the magazine, nor Mr Ren accepts liability for any loss arising from anyone’s use of its content.