There are many things involved in properly managing your business. These include marketing, management of staff, administration, financial and accounting matters in addition to operating the core nature of your business. Most of us went in to business to practice a certain professional skill or market and sell products and services or something similar. There are no examinations tests or training required before you set up a business. Many of us have learnt 'as we went along' the other skills necessary to manage a business.
The matters set out below are to provide some broad guidance on issues affecting how you operate your company.
Incorporating a company
Many people operate their businesses through a company. It costs about $1,000.00 to incorporate a company. You are presented with a coloured folder of documents including the details of the name and ACN number of your company. This folder is called the Corporate Register.
The Corporate Register should contain relevant corporate/company records about your company including - a copy of the Constitution of the Company (which, together with the Corporations Law, governs how the company operates), details of company officers (directors secretaries; i.e. those involved in the management of the company) shareholders/members (who owns the company); minutes of meetings of directors and shareholders; details of any securities over the company's assets; and copies of all documents lodged at the ASIC and ATO. Often people have no idea what this folder is for and they simply put it away in a cupboard never to be seen again until they want to sell their company or bring in a new business 'partner'. Then that party will want to see the Corporate Register and it will not be accurate or up to date, which can prejudice your plans for the company.
Officers of your company must sign a consent form agreeing to act as an officer of the company. Directors are appointed and removed by the shareholders. Details of appointments and changes to officers must be recorded in Minutes and promptly notified to the ASIC. Late fees are imposed if you do not do so.
Directors - Directors are responsible for the day to day management of the company. Directors should meet regularly to discuss and manage the company. If physical meetings are impractical, decisions can still be made and recorded by a circulatory resolution (setting out the matter which has been agreed) signed by all Directors. Directors should agree and minute important matters affecting the company e.g. buying a new piece of equipment; agreeing to sell the business; agreeing to raise funds from a lender; buying a building; leasing a building; changing officers; changing shareholders etc.
Shareholders - Shareholders own the shares in the company and may be active in the management of the company or 'passive investors'. 21 days notice of shareholders meetings must be given unless the shareholders agree to a shorter notice period. Shareholders must be sent an Agenda which details what is to be discussed at the meeting and any resolutions (decisions) which are sought to be made. Shareholders can call meetings themselves in certain circumstances.
Australian Securities & Investment Commission ("ASIC")
ASIC keeps public records about companies. You can get some information about companies free on the ASIC web site (http://www.asic.gov.au). You must regularly notify ASIC of changes of officers, changes of shareholders, change of business address or registered office, any charges (security) over the company's assets and other matters. You must also file an Annual Return each year. The Annual Return is to confirm details of the company its officers and shareholders.
Australian Taxation Office ("ATO")
Your company must appoint a Public Officer who is the person in the company who liaises with the ATO. Your company must have a tax file number and lodge annual Tax Returns. It may also require an ABN in respect to GST related matters.
Your stationery should include details of your company's name ACN and ABN. Tax invoices must have your ABN on them. Contracts and other legal documents should detail your company name and ACN number but generally do not require your ABN.
When a company issues or transfers shares in the company, these must be recorded in Minutes and properly documented. An Application for Shares is required to issue shares and a share transfer is required to transfer shares. Each shareholder should hold one share certificate detailing all the shares which it holds in the company. If the number of shares held by the shareholder varies, then the original share certificate should be cancelled and a new one issued. All share certificates must have a unique chronological number to properly identify them.
It is prudent to have a shareholders agreement for your company. This is a specific agreement between the company and the shareholders. It sets out certain things about the company including whether shareholders can nominate a director; the roles of directors in the management of the company (e.g. who does the administration or marketing of the company); how shares in the company can be transferred; how the company is to be funded; criteria for selling the business of the company; restraints of trade (restrictions on shareholders when they sell their shares, which means they cannot for a certain time in a certain area compete with the company and its business); protection of the confidential information of the company (this is an asset of the company which directors and shareholders cannot use for themselves).
It is a good idea to discuss with your business 'partners' your aims and objectives for the company so you have an agreed plan for the company. This should relate not only to budgets, business plans and marketing plans but also to shareholders agreements. These documents and plans should be regularly reviewed. People are different and they will have different ideas about the company, how it operates and how long they want to be involved.
Rather than being surprised, it is better to communicate, discuss and plan these things. This makes it easier when the time comes to find a new 'partner', sell the business or whatever.
People wanting to buy in to your company or buy your business will want to do a due diligence on your company and business. This is to check that its records are in order, it is properly run, it has done what is legally required of it (including lodging tax returns and annual returns) and generally ensure that they are getting what they pay for. Understanding what is required and maintaining good records for your company on an ongoing basis will ensure you know what you are doing in your company and that you are prepared for new investors or a sale. The value of your business may be adversely affected if you have not maintained proper records and complied with the legal requirements for your company. As a worst case scenario, it may even prevent you from obtaining an investor or selling the business.
Keeping Good Companies ®
Our Anne Hodgson has been a Chartered Secretary (Qualified Company Secretary) and she has also been a member of Chartered Secretaries Australia Limited ("CSA"). CSA is the leading professional body in Australia for companies and those involved in managing companies.
Anne is qualified to provide you with legal and practical assistance in the maintenance of your Corporate Register, preparation of Minutes, drafting of Shareholders Agreements and the other matters relevant to the management of your company.
CSA provides a wide range of professional development courses and has a special half day program called The Accidental Company Secretary ® which has been developed to assist those who take on the role of company secretary accidentally or for people who have set up their own company and have no or limited knowledge of what company secretarial duties require.
If you require any assistance in managing your company please contact us.
This article is general in nature
and for information only. It should not be acted upon without obtaining
specific legal advice.
©Anne Hodgson & Co Lawyers,
Tel: 03 9578 7444 Fax: 03 8677 2962 Email: email@example.com