Company Law

When you incorporate a company, you are creating a separate legal entity to carry on business.

Every company has certain basic elements:

  • A name which has been reserved by the Registrar of Companies
  • At least one share, one shareholder and one director
  • A registered office where the company records are kept
  • An address for service where legal documents can be served
  • An address for communication.

Although it is common to speak of a 'limited liability company' the company is liable in full for all obligations that it incurs. It is in fact the liability of the shareholders that is limited - they are only liable for any unpaid money owing on their shares (subject to any personal guarantees given). If a company is unable to pay its debts, it can face insolvency and liquidation by the High Court.

Rennie Cox has a wealth of experience in company law. Talk to us about your proposed or existing company venture.

A company comes into existence after it is incorporated under the Companies Act 1993. Once incorporated it is recognised in law as an independent legal entity (a body corporate). This means it is treated as being a separate 'person' from its directors and shareholders. It can therefore do many of the same things as a natural person - for example, hold property in its own name, enter contracts, sue and be sued, etc. Rennie Cox can assist you with forming your company. Once incorporated, the Registrar of Companies will issue you with a Certificate of Incorporation.

Directors are responsible for managing the company's day-to-day business and may, or may not, be shareholders. Directors owe duties to the company, to its shareholders, and to others dealing with the company. Directors must act honestly in what they believe to be the best interests of the company and with such care as may reasonably be expected of them in all the circumstances. Directors must not carry on the business in a manner likely to create a substantial risk of serious loss to the company's creditors (also called 'reckless trading').

A person cannot be a director of a company if he/she is:

  • under 18 years of age
  • an undischarged bankrupt
  • prohibited from directing/promoting/participating in the management of a company under any statutory provisions. This includes (but is not limited to) people who have been:
    1. convicted of a crime involving dishonesty in the last five years, or
    2. prohibited from managing a company by the Registrar of Companies, or
    3. prohibited from being a director or promoter of, or being concerned or taking part in the management of, an overseas company under an order made, or notice given, under the law of a prescribed overseas jurisdiction (Australia) in accordance with section 151(2)(eb) of the Companies Act 1993;
  • subject to a property order made under sections 30 or 31 of the Protection of Personal and Property Rights Act 1988
  • not qualified pursuant to the constitution of a particular company.

The Companies Act requires directors to abide by a two-step test at all times:

  1. The company must own more assets than liabilities
  2. The company must be able to pay all its accounts as they fall due.

Shareholders pay money into the company in return for shares. The number of shares they hold determines the level of control they have, at shareholder level, within the company. For example, if a shareholder holds 750 shares out of a total of 1,000 shares, that shareholder controls 75% of the votes at a general meeting of the company (unless the company constitution states otherwise).

Shareholders do not make decisions on running a company, unless they are also directors when they would do so in that capacity or the Act or the constitution permits.

The directors manage the business and affairs (filing etc) of the company. In small businesses, it is common for the major shareholder to be the managing director of the company.

Every company must have at least one shareholder and at least one share.

It is extremely important that you fully understand all of your duties if you are a director of a company. If you are unsure of the extent of these, talk to Rennie Cox.

Insolvency

When a person is insolvent, they face bankruptcy.

When a company is insolvent, it faces liquidation. If you are not being paid a a debtor company, one option is to (a) issue a statutory demand requiring payment within a defined time frame, and then, if no (or only partial) payment is received, (b) apply to the High Court to have the company liquidated. Liquidation is a serious matter, and companies strive to avoid it.

If you are not being paid by debtors, contact Rennie Cox to discuss the best strategy to deal with the problem.

Liquidation

Company liquidation occurs after it has been established that a company is unable to pay its debts when they fall due.

A company can be placed into liquidation voluntarily or by High Court order.

Usually a private sector liquidator (such as a chartered accountant) will be appointed as liquidator. However, where the company is put into liquidation by court order the Official Assignee may be appointed liquidator.

The liquidator will investigate the company's financial affairs and find out what caused its failure. The liquidator will also investigate possible offences by company officers, such as directors and shareholders, and identify and sell assets for the benefit of creditors.

Officers of the company are required to assist the liquidator by providing information about the company and answering any questions that the liquidator may have. A failure to do so can lead to prosecution by the National Enforcement Unit.

Strategically used, the threat of liquidation can often encourage a debtor to pay its debts.

If you are an employee of a company facing liquidation, you will naturally also be concerned about the security of your position. Contact Rennie Cox about how liquidation of the company will affect you.