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 Changing the type of company |
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Author: Christopher BevanThis is an extract from Lawbook Company's Nutshell: Corporations Law by Christopher Bevan (Sydney: LBC, 1999, 4th ed). LBC Nutshells are the essential revision tool: they provide a concise outline of the principles for each of the major subject areas within undergraduate law. Written in clear, straightforward language, the authors clearly explain the principles, and highlight key cases and legislative provisions for each subject.
The Corporations Law now provides, as a result of the amendments made to it by the Company Law Review Bill 1997, a separate regime for changing company type. That regime is contained in Part 2B.7 of the Corporations Law .
Section 162 provides a table setting out the conversions which the Corporations Law allows to be made. A company may change to a company of a different type as set out in that table by passing a special resolution resolving to change its type and by complying with ss 163 and 164 which are discussed below.
The s 162 table provides:
this type of company may change:
1. Proprietary company limited by shares
to this type of company:
Unlimited proprietary company
Unlimited public company
Public company limited by shares;
this type of company may change:
2. Unlimited proprietary company
to this type of company:
Proprietary company limited by shares (but only if, within the last 3 years, it was not a limited company that became an unlimited company);
Public company limited by shares (but only if, within the last 3 years, it was not a limited company that became an unlimited company);
Unlimited public company;
this type of company may change:
3. Public company limited by shares
to this type of company:
Unlimited public company;
Unlimited proprietary company;
Proprietary company limited by shares;
No liability company (see subsection (2));
this type of company may change:
4. Company limited by guarantee
to this type of company:
Public company limited by shares;
Unlimited public company;
Proprietary company limited by shares;
Unlimited proprietary company;
this type of company may change:
5. Unlimited public company
to this type of company
Public company limited by shares (but only if, within the last 3 years, it was not a limited company that became an unlimited company);
Proprietary company limited by shares (but only if, within the last 3 years, it was not a limited company that became an unlimited company);
Unlimited proprietary company;
this type of company may change:
6. Public no liability company
to this type of company
Public company limited by shares (but only if all the issued shares are fully paid-up);
Proprietary company limited by shares (but only if all the issues shares are fully paid-up);
Section 162(2) provides that a public company limited by shares may only convert to a no liability company if:
a. the company's constitution states that its sole objects are mining purposes; and
b. under the constitution the company has no contractual right to recover calls made on its shares from a shareholder who fails to pay them; and
c. all the company's issued shares are fully paid-up.
Section 162(3) provides that the company must lodge a copy of the special resolution resolving to change its company type with the ASIC within 14 days after the resolution has been passed.
The additional requirements in ss 163 and 164 must be satisfied before a company can change its company type. For example, s 163(1) provides that a company must lodge an application with the ASIC before it can change its company type. Section 163(2) sets out the contents of that application. Section 163(3) sets out additional requirements where the change of company type is from a company limited by guarantee to a company limited by shares.
Section 164 imposes notice requirements on the ASIC which require the ASIC to give notice that it intends to alter the details of a company's registration if the ASIC is satisfied that the company's application to change the company type satisfies the requirements of s 163 (that is, the requirements of the application provision). In the case of an application by a company limited by guarantee to change to a company limited by shares, the ASIC can only approve the change of company type if it is satisfied that the company's creditors are not likely to be materially prejudiced by the change. In the case of an application by a company limited by guarantee to a change to a company limited by shares, the ASIC must be satisfied that the obligations that would attach to the shares are not unreasonable compared with the obligations that attached to a membership of the company limited by guarantee.
Section 165 gives the ASIC a power to direct a proprietary company to change to a public company in certain circumstances, most notably where the proprietary company has contravened the minimum shareholder requirement of s 113 to be a proprietary company.
This article should be read in conjunction with Types of company.
Christopher Bevan
BEc LLM (Hons)(Syd)
Barrister
Wentworth Chambers
1999
March, 2001
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