The most common structure utilised by business both large and small is the company or corporation. These can be publicly-listed companies in which the public may buy and sell shares on the stock market, or small proprietary limited companies (this is the source of the ‘Pty Ltd’ which so often follows the names of the companies we deal with on a day-to-day basis) where shareholding is limited to a small group of people or even one individual. Indeed, while companies must have at least one Director, one Secretary and one shareholder, in many instances the same individual takes on all three of these roles in different capacities.
A Director is a person who effectively controls a company (in a larger organisation, they may exercise some of this control by employing managers to whom they delegate some control of day-to-day operations). While a Director exercises control, the secretary administers company affairs, they both have a duty to the shareholders, who are the owners of the company.
The most important benefit of a company structure is that it is its own entity or ‘person’, and as such, the liability of the shareholders where problems arise is limited to the value of their shareholding. Similarly, in most circumstances where they have acted properly, Directors will be protected from personal liability where something goes wrong and creditors come calling. To this end, it is said that the primary benefit provided by a company structure is insulation from liability, and those wishing to insulate themselves from liability which may arise in the conduct of their business should prudently consult with a solicitor in relation to setting up a company structure.
The fundamental rules of a company are set out in its constitution. A company’s constitution operates much in the same way that a national constitution sets out the fundamental rules in which a country is to operate. Aside from setting out the fundamental rules for the operation of the company, the company constitution also sets out how decisions are to be made, how shareholder meetings, are to be conducted, and how Directors are able to exercise their powers.
As such, it is, of course, vital to retain an experienced solicitor to assist in drafting such an important document to ensure it is given proper consideration from the outset. Continuing the analogy of a country’s constitution, it is often remarked as to how difficult it is to change the Australian constitution, to the point that amendments are time-consuming, costly and divert limited resources away from more pertinent activities. By the same logic, when a company grows, and shareholders preponderate, amending the company constitution can become extremely difficult – so it is important that the document is given proper consideration and drafted correctly from the outset.
Forge Legal is well placed to work with you for designing and implementing Company Constitutions. Whether you wish to float a company on the share market or expand your platform of private investors, our dedicated contracts team will get the necessary paperwork together to get your business to where you want it to be.