Week 4 - Membership and Share Capital

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Questions and Answers

Which condition must be met for a company to pay dividends?

The company's liabilities must exceed its assets.

The company must be in a phase of rapid growth.

All shareholders must receive the same amount.

The payment must not materially prejudice its creditors. (correct)

What discretion do directors have regarding dividends?

Directors must seek shareholder approval for any dividend payment.

Directors must pay dividends in cash only.

Directors can determine the timing and method of payment. (correct)

Directors cannot change the dividend amount once declared.

Under what circumstance are dividends prohibited from being paid?

The payment would cause the company to become insolvent. (correct)

The company has excess cash reserves.

The company is experiencing profits.

The company's shares have depreciated in value.

What is required for a debt related to dividends to arise?

Dividends must have been declared and the payment time must be due. Signup and view all the answers

What must directors ensure when deciding on dividend payments?

They must comply with applicable accounting standards. Signup and view all the answers

What legal consequences can arise from the failure to pay dividends?

It could be seen as oppression of shareholders. Signup and view all the answers

What is the key factor in determining the timing of dividend payments?

The solvency of the company. Signup and view all the answers

Which of the following accurately reflects disclosures required for shares?

Disclosure is required unless exceptions apply under specific sections. Signup and view all the answers

What is the minimum notice period required for non-listed companies to convene a members' meeting?

21 days Signup and view all the answers

What percentage of members must agree for an extraordinary general meeting to be called on short notice?

95% Signup and view all the answers

What is required for certain resolutions like the removal of a director?

2 months' notice Signup and view all the answers

What happens if a quorum is not present within 30 minutes at a members' meeting?

The meeting must be adjourned Signup and view all the answers

How is notice deemed given when delivered by fax or electronic means?

On the next business day Signup and view all the answers

What must be included in a company's constitution regarding the issuance of preference shares?

Rights related to the issuance of preference shares Signup and view all the answers

Which characteristic is NOT associated with preference shares?

Guaranteed share in surplus assets upon winding-up Signup and view all the answers

What happens to the dividend rights attached to redeemable preference shares upon their redemption?

They are eliminated unless specified otherwise in the terms of issue Signup and view all the answers

What is a necessary condition for a company to redeem preference shares?

They must be fully paid up Signup and view all the answers

What must happen for the reduction of redeemable preference shares to be valid?

A special resolution from redeemable preference shareholders and a company resolution is needed Signup and view all the answers

In case of a company's infringement of the requirements for share redemption, what is true?

The transaction remains valid, but individuals involved may face penalties Signup and view all the answers

What is the primary concern regarding redemption of shares in relation to creditors?

To prevent reduction of a company’s capital to creditors' disadvantage Signup and view all the answers

How do the voting rights for preference shareholders compare to ordinary shareholders?

Preference shareholders have restricted voting rights Signup and view all the answers

Under what circumstances is disclosure not required for small scale offerings?

When involving 20 investors or less with a maximum of $2 million raised. Signup and view all the answers

Which type of investor is not required to receive disclosure if they meet certain financial criteria?

Sophisticated Investors Signup and view all the answers

Who among the following is exempt from disclosure requirements?

Senior managers and their immediate family members Signup and view all the answers

What is the purpose of a prospectus according to the content?

To disclose comprehensive information to potential investors. Signup and view all the answers

Which document is used for offers involving $10 million or less?

Offer Information Statement Signup and view all the answers

When is disclosure not required if shares are issued?

If shares are issued as part of a takeover bid. Signup and view all the answers

What document must be approved by ASIC before it can be issued?

Profile Statement Signup and view all the answers

Which of the following is true regarding proprietary companies?

They must not engage in activities that require disclosure. Signup and view all the answers

What is the maximum number of non-employee shareholders allowed in a proprietary company?

50 Signup and view all the answers

Under what condition can a public company have shareholders?

There is no maximum limit Signup and view all the answers

Which section of the Corporations Act allows for equity-based crowd-sourced funding?

Part 6D.3A Signup and view all the answers

What is the importance of Section 113 in the context of proprietary companies?

It allows for crowd-sourced funding exemptions Signup and view all the answers

What is required for a company to obtain a member upon incorporation?

Consent and issuance of shares Signup and view all the answers

Which of the following is NOT a method through which membership can be obtained?

By issuing bonds Signup and view all the answers

What is a requirement for companies concerning shareholder information?

Companies must disclose information to shareholders and the public Signup and view all the answers

Which types of companies are eligible for crowd-sourced funding under the regulatory framework?

Unlisted public companies and proprietary companies with less than $25 million in assets Signup and view all the answers

Study Notes

Company membership requires a minimum of one member upon incorporation; proprietary companies are limited to 50 non-employee shareholders.
Crowd-Sourced Funding (CSF) shareholders are exempt from the 50 non-employee limit, enhancing proprietary companies’ fundraising opportunities.
Public companies have no cap on shareholder numbers, promoting wider investment.

Issuing and Transferring Shares

Shares can be issued to members during or after incorporation; legal frameworks govern these processes.
Transfer of shares is regulated to ensure compliance with company laws and member agreements.

Types of Shares

Companies may issue various types of shares, including ordinary and preference shares with distinct rights.
Preference shares typically come with restricted voting rights, prioritized dividends, and specific conditions for issuance, highlighted by regulations like s 124 and s 254A.

Dividends

Dividends distribute profit to shareholders but can only be paid when the company's assets exceed liabilities, ensuring fairness and creditor protection as mandated by s 254T.
Directors have discretion over dividend amounts, timing, and payment methods, which can include cash or shares.

Legal Obligations and Conditions

Companies must not pay dividends if insolvent or if the payments impair solvency; directors must maintain high standards of corporate governance.
Shareholders engage in director remuneration discussions annually at AGMs as mandated by s 202A.

Disclosure Requirements

Full disclosures are essential for share issuance unless exceptions apply, such as small-scale offerings and sophisticated investor exemptions under s 708.
Compliance with respective disclosure regulations ensures transparency and investor protection.

Meetings

Written notice is required for member meetings, with specific delivery methods outlined in s 249J.
Non-listed companies require 21 days’ notice, while listed companies need 28 days; short notice is permissible under specific circumstances if member agreement is reached.

Quorum and Resolutions

Meetings must be held at reasonable locations and times, with a quorum requiring at least two members.
Resolutions demand a simple majority for ordinary matters, enabling effective decision-making in company governance.

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Description

This quiz covers the key concepts of membership and share capital in companies, exploring how one can become a member and the processes behind issuing and transferring shares. Understanding the legal framework and regulations involved in these aspects is crucial for effective company management.