A corporation is a legal construct (often described as a legal ‘fiction’ – though not everyone accepts that description). Therefore, when we ask, “what is a corporation? And what types of corporation are there?” the answers depend upon the law in our jurisdiction.
In Australia, definitions of ‘corporation’ exist in common law and legislation. At common law, ‘corporation’ “refer[s] to any type of artificial legal entity”;1 though Ford is more specific: a corporation “is a legal device by which legal rights, powers, privileges, immunities, duties, liabilities and disabilities may be attributed to a fictional entity equated for many purposes to a natural person.”2 So, the corporation is a legal, but not natural, person. This is the essence of the corporate form, as it is understood across many jurisdictions around the world.
While common law definitions may suffice for general discussion, Australian practitioners must be familiar with corporations as defined in legislation. Most Australian corporations are registered under the Corporations Act 2001 (Cth), and so its s57A definition of corporation is especially important; many practitioners need not look beyond it. However, there are other pieces of legislation —both Commonwealth, and State/Territory— that facilitate incorporation, or, indeed, create corporations. The most important of these corporate forms are summarised below.
Contents
Company
The following 6 types of company can be registered under the Corporations Act 2001 (Cth) (see s112(1)):
| Proprietary Company | Limited By Shares
Unlimited With Share Capital |
| Public Company | Limited By Shares
Limited By Guarantee Unlimited With Share Capital No Liability Company |
Proprietary v Public Company
A proprietary company (sometimes called a ‘private’ company) cannot sell shares to the public (it can sell shares to its original shareholders, the ones registered at the time the company was created, and its (and any subsidiary’s) employees). A public company can sell shares to the public. The Corporations Act 2001 (Cth) makes a distinction between small and large proprietary companies, but you can refer to the ‘further reading’ resources below for information about that.
A proprietary company may not have more than 50 non-employee shareholders (s113), whereas a public company may. A proprietary company enjoys fewer regulatory requirements than a public company; it need not hold an annual general meeting, for example.
Some of the key differences between public and proprietary companies of different size are summarised by the Governance Institute here.
The Corporations Act 2001 (Cth) says a “company limited by shares means a company formed on the principle of having the liability of its members limited to the amount (if any) unpaid on the shares respectively held by them”: s9.
These companies issue shares in exchange for money (or, sometimes in exchange for some other thing of value). A share is a piece of intangible personal property (s1070A(1) Corporations Act 2001 (Cth)). A share gives its owner part ownership of a company, and may also give her a range of other rights and responsibilities, like rights to dividends, and voting rights – these additional rights and responsibilities are determined by the terms of the purchase contract between the person buying the shares and the company issuing them. A person who owns shares is called a shareholder or member of the company.
Shares may be paid for in full at the time of purchase, or they may be part-paid, in which case, the shareholder must pay the outstanding amount at a later time. Companies usually issue shares in order to raise money; shares may be issued at the time the company is first created and registered, or at a later time (in a ‘float’ or ‘initial public offering'(“IPO“)). A shareholder may sell their shares to others.
But why are these companies described as ‘limited’ by their shares?
Well, it is their liability that is limited. If one of these companies is sued, or becomes insolvent, a shareholder can sleep easily knowing that her liability to pay the company’s debts is limited to any amount owing on her shares. If she has paid for her shares in full, then she does not have to contribute anything toward paying the company’s debts. If she owns part-paid shares, then she will have to pay the outstanding amount on her shares, and no more.
This is convenient for shareholders, but it does mean that if a company cannot pay its debts, a creditor (including employees and plaintiffs) will have to bear their loss themselves. A company limited by shares must include the word ‘limited’ or ‘ltd’ in its name, to signal to potential creditors and other members of the community that it is limited by shares: s148(2) Corporations Act 2001 (Cth). You can easily distinguish between public and proprietary limited companies, because the latter will include ‘pty ltd’ in its name.
Examples (Pty Ltd): Red Energy Pty Ltd, Hancock Prospecting Pty Ltd, Bahen & Co Pty Ltd.
Examples (Ltd): AGL Ltd, Fortescue Metals Group Ltd.
Unlimited Company: Proprietary or Public
The Corporations Act 2001 (Cth) says an “unlimited company means a company whose members have no limit placed on their liability“: s9. You can imagine, this type of company is rarely used. The unlimited company is similar to a partnership, in that its members are personally liable for any debts it cannot pay, but, unlike a partnership, it enjoys the benefits of a separate legal identity. These companies are not required to include the word ‘unlimited’ in their names: s148(3) Corporations Act 2001 (Cth).
Public Company Limited By Guarantee
The Corporations Act 2001 (Cth) says a “company limited by guarantee means a company formed on the principle of having the liability of its members limited to the respective amounts that the members undertake to contribute to the property of the company if it is wound up“: s9.
A company limited by guarantee has no shares. Its members do not provide funds up-front to the company. Rather, its members agree that, in the event the company is wound up, they will pay to the company whatever amount they have previously agreed.
Examples: The Rotary Club of Brisbane Mid-City Foundation Ltd; Starlight Children’s Foundation Australia.
No Liability Public Company
This type of company’s sole objects are mining purposes: s112(2). Members are not required to pay any outstanding amounts on their shares, though if they fail to do so, they may forfeit their shares. These companies must include ‘No Liability’ or ‘NL’ in their names.
Examples: Tungsten Mining NL, Mount Burgess Mining NL, Independence Group NL.
This hybrid form company is no longer registrable under the Corporations Act 2001 (Cth), following the Company Law Review Act 1998 (Cth) amendments; some do persist, however.
Example: Maitland Mutual Building Society Limited
Aboriginal and Torres Strait Islander Corporation
This corporation is registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth), (“CATSI“) though it is captured within the Corporations Act 2001 s57A definition of ‘corporation’. The Act is administered by the Registrar of Indigenous Corporations. To be eligible to be incorporated under the CATSI, a company must have (among other things) a simple majority of members who are Aboriginal and/or Torres Strait Islander. These companies must include the words ‘Aboriginal corporation’, ‘Torres Strait Islander corporation’, ‘Aboriginal and Torres Strait Islander corporation’, ‘Torres Strait and Islander corporation’ or ‘Indigenous corporation’ in their names: s 85-1(3). These corporations may be run for profit; or they may be non-profit corporations, in which case they may also be registered with the ACNC.
The Registrar provides the following information about Aboriginal and Torres Straight Islander Corporations:
- There are about 2500 Aboriginal and Torres Strait Islander corporations formerly registered under the Aboriginal Councils and Associations Act 1976, now registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act).
- Estimates suggest that there are at least as many as that again of Indigenous corporations registered under other legislation.
- Corporations deliver a range of services — many deliver essential services to remote communities or hold land.
- Most are publicly funded but some generate significant income through agreements and business operations.
- Most native title corporations are registered under the ACA Act, as are many remote Indigenous arts centres.
Examples: Waltja Tjutangku Palyapayi Aboriginal Corporation; Gundjeihmi Aboriginal Corporation
Incorporated Association
These are included in the s57A Corporations Act 2001 definition of “corporation”. However, they are registered under State and Territory associations incorporation legislation. According to ASIC,
An incorporated association is also a legal entity separate from its individual members and can hold property, sue and be sued. Incorporating an association in a state or territory restricts the organisation to operating in its home jurisdiction. For example, an association incorporated under the Associations Incorporation Act 2009 of New South Wales may only carry on business in New South Wales.
The associations incorporation legislation in each state and territory provides a simple and more affordable means of creating a separate legal entity for small, community-based groups with limited resources. This legislation impose[s] less onerous conditions than the Corporations Act governing the activities of companies.
If an incorporated association wishes to engage in interstate trade, it may assume a company form and register under the Corporations Act 2001 (Cth), or it may maintain its form as an incorporated association, but register with ASIC, in which case it will be allocated an ‘Australian Registered Body Number’ or ‘ARBN’.
Examples: La Mama Inc; Melbourne University Debating Society Inc; Llama Association of Australasia Inc; Ulysses Club Inc (has ARBN).
Co-operative
Co-operatives are another type of corporation registered under State and Territory legislation. In an effort to harmonise those laws, the Co-operative National Law (“CNL“)3 was introduced in NSW in 2012(Co-operatives (Adoption of National Law) Act 2012) and has since been applied in Victoria (Co-operative National Law Application Act 2013); other States and the Territories are expected to apply the CNL shortly.
Consumer Affairs Victoria describes a co-operative as
a democratic organisation, owned and controlled by its members for a common benefit. Co-operatives are traditionally based on values of self-help, self-responsibility, equality and solidarity.
The ‘Co-operative principles’ are set out in Part 1.3 of the CNL. Although a co-operative is a ‘corporation’ within the s57A Corporations Act 2001 (Cth) definition, s12 of the CNL excludes the application of much of that Act, and much of the ASIC Act.
Under the CNL, there are two types of co-operative: Distributing, in which surplus funds may be distributed to members (ss17(2)(a), 18 CNL), and Non-Distributing, in which surplus funds must be used to support co-operative functions (ss17(2)(b), 19 CNL). Regardless of type, all members of a co-operative have equal status and voting rights, all members are eligible to nominate as directors and to elect directors, and capital is used for the group’s common interest.
As for members’ liability to the co-operative, it is limited to any amount unpaid on the member’s share (if any) and/or any amount stipulated in the co-operative’s rules (note that a member does not necessarily hold shares): see s121 CNL.
The corporation’s status as a cooperative must be reflected in its name, with the words ‘cooperative’ or ‘co-op’, and ‘limited’ or ‘ltd’: s220 CNL.
For further information, review this guidance from Consumer Affairs Victoria, or consult the chapter on co-operatives in Gooley et al (full details below).
Examples: Australian Raw Milk Producers Co-Op Ltd; Moorleigh Ceramic Co-Op Ltd; Yarra Community Solar Co-Op Ltd; Melbourne University Food Co-Operative Limited.
Statutory Corporation & Public Authority
Statutory Corporations are created by a piece of legislation – the ‘parent statute’. Some statutory corporations are a corporation sole (see below) but generally, they have a more recognisably ‘company-like’ structure, with a board. The ‘parent statute’ (or a ‘generic’ statute referred to by the parent statute – for example, the Public Governance, Performance and Accountability Act 2013 (Cth)) will define the structure of the corporation, its purposes and powers, and will set out certain processes that must be followed in relation to it – for example, the process for appointment of its board; process for communication between the corporation and the executive government; process for certain activities requiring special approval.
A Public Authority is a type of Statutory Corporation (although, each jurisdiction adopts slightly different language; consult your local Acts. For example, at the Commonwealth level, the term “public authority” has been eschewed in favour of “corporate Commonwealth entity” and “Commonwealth company”: see Public Governance, Performance and Accountability Act 2013 (Cth).) “Public Authority” has a common law definition (which, as noted in this useful Minter Ellison publication may be difficult to apply), and may also be specifically defined for the purposes of a piece of legislation: see, for example, s 16 Right To Information Act 2009 (Qld) and this definition published by ICAC.
Where the status of a statutory body as a corporation is unclear from the terms of the parent statute, courts will carefully review its powers and purposes, to determine whether it is a corporation: see the discussion in Ford at [2.100], and review Chaff and Hay Acquisition Committee v J A Hemphill & Sons Pty Ltd (1947) 74 CLR 375 at 385; Mayor of Salford v Lancashire County Council (1890) 25 QBD 384 at 389; and Bonsor v Musicians Union [1956] AC 104. For Commonwealth bodies, the Public Governance, Performance and Accountability Act 2013 (Cth) helps correct ambiguity that may exist in the parent statute.
In Victoria, existing statutory corporations may be converted to state owned enterprises, and new state owned enterprises may be established under the State Owned Enterprises Act 1992 (Vic).
Examples: ASIC (established by the Australian Securities and Investments Commission Act 2001) CSIRO (established by the Science And Industry Research Act 1949 (Cth)), SBS (established by the Special Broadcasting Service Act 1991 (Cth)); University of Melbourne (see University of Melbourne Act 2009 (Vic), which affirms the University’s status as a body corporate in s4(2)(b)); owners corporations (the type automatically created when a plan of subdivision is registered at Land Victoria) (see Owners Corporation Act 2006 (Vic) and this guide).
Corporation Sole
Corporations Sole do not fall within the s57A Corporations Act 2001 (Cth) definition of ‘corporation’, however, where that Act refers to ‘bodies’ more generally, the corporation sole is included.
The corporation sole is, historically, a creature of English common law, though modern Australian corporations sole are created by statute, or Royal Charter (Austin and Ramsay, 2013, 37). The corporation sole was once a device used for an office that could expect a succession of office-holders; the office was considered a ‘corporation sole’, and property vested in the office/corporation, not the office-holder. A neat solution. Ford (Austin and Ramsay, 2013, 37) offers the following examples of contemporary Australian corporations sole:
- Roman catholic Church Property (Amendment) Act 1916
- The Commonwealth of Australia, for the purposes of The Property for Public Purposes Act 1901 (Cth) (see s50(1))
- The NSW Public Trustee: Public Trustee Act 1913 (NSW) (see s7)
- The “Official Trustee in Bankruptcy” established under the Bankruptcy Act 1966 (Cth) (see s18)
- The Crown, for the purposes of Property Law Act 1958 (Vic) (see s176) and Property Law Act 1974 (Qld) (see s223).
- Gooley et al also identify the Minister for Planning (NSW), as a corporation sole established under the Minister Administering the Environmental Planning and Assessment Act 1979 (NSW) (Gooley et al, 2015, 439) (Note that the common law does not consider Ministers to be corporations sole, so this piece of legislation is rather unusual: see Hubbard Association of Scientologist International v A-G (Vic) [1976] VR 119.)
But, ‘[i]n Australia, courts have disposed of many cases involving governments without having to consider whether they are corporations sole’, (Austin and Ramsay, 2013, 37, citing as proof Bank of New South Wales v Commonwealth (the Bank Nationalisation Case) (1948) 76 CLR 1 at 362-3 per Dixon J. )
Note that: a proprietary company may, under the Corporations Act 2001 (Cth), have only one member; but that does not make it a corporation sole.
Royal Charter / Chartered Corporation
This rather ancient corporate form persists today, but it is rare. A chartered corporation is created by the grant of a charter by the Commonwealth Governor-General; prior to 1987, these charters were granted by the reigning monarch. (Austin and Ramsay, 2013, 40) The charter establishes the liability of members.
Like the corporation sole, the chartered corporation does not fall within the s57A Corporations Act 2001 (Cth) definition of ‘corporation’, but is subject to that legislation where broader terms, like ‘body’, are used.
Example: Chartered Accountants Australia & New Zealand: see its charter here.
Foreign Company
A foreign company is incorporated outside Australia. In order to conduct business in Australia, it must first register with ASIC: s601CD Corporations Act 2001 (Cth). It will receive an ‘Australian Registered Body Number’ or ‘ARBN’.
Examples: Canadian Tourism Commission; Toyota Tsusho Gas E&P Otway Ltd.
Related Bodies Corporate
You will also hear the terms ‘parent’, ‘holding’, ‘subsidiary’, ‘ultimate holding’ and ‘related’ to describe companies and their relationships with one another. The Corporations Act 2001 (Cth) defines some of these terms.
Subsidiary Company
This is defined in ss 9 and 46. It is a company which has a simple majority of shares, or voting rights, held by another company; or one which has the composition of its board controlled by another company. So, if Jane Citizen holds a majority of shares in Awesome Ltd, then Awesome Ltd is not a subsidiary company. But if Jane Citizen Pty Ltd holds a majority of shares in Awesome Ltd, then Awesome Ltd is a subsidiary of Jane Citizen Pty Ltd.
Wholly-Owned Subsidiary
This is defined in s9. Put simply, it is a subsidiary company wholly-owned by its parent/holding company. The Governance Institute provides this advice to directors of wholly-owned subsidiaries.
Parent Company / Holding Company
This is not defined in the Corporations Act 2001 (Cth) but it is the term used for a company with a subsidiary company (or multiple subsidiary companies).
Ultimate Holding Company
This is defined in s9 Corporations Act 2001 (Cth). It is any parent/holding company that is not also a subsidiary company.
Related Companies
These are defined in s50 Corporations Act 2001 (Cth). Companies with a common ultimate holding company are all related. Parent and subsidiary companies are related.
Further Reading
R P Austin and I M Ramsay, Ford’s Principles of Corporations Law (LexisNexis Butterworths, 15th ed, 2013)
Australian Stock Exchange, (free) online courses available here
Justice Connect, Indigenous Corporations (Factsheet) available here
Phillip Lipton, Abe Herzberg and Michelle Welsh, Understanding Company Law (Thomson Reuters, 17th ed, 2014)
John Gooley et al, Corporations and Associations Law: Principles and Issues (LexisNexis Butterworts, 6th ed, 2015) Especially useful information on co-operatives and incorporated associations, and also, non-corporate forms like the trading trust, partnerships and joint ventures.
- Phillip Lipton, Abe Herzberg and Michelle Welsh, Understanding Company Law (Thomson Reuters, 17th ed, 2014) 79
- R P Austin and I M Ramsay, Ford’s Principles of Corporations Law (LexisNexis Butterworths, 15th ed, 2013) 5
- Rather curiously, the CNL is located in an appendix to the Co-operatives (Adoption of National Law) Act 2012 (NSW)