All you need to know about setting up a company structure for your small business.
What is a Company?
A company is a separate legal entity capable of holding assets in its own name, conduct a business in its own right, and it can sue and be sued.
Shareholders are the owners while directors run it
In many cases, directors are also shareholders, along with employees.
To become a company, an entity must be incorporated under the Corporations Act 2001 (Commonwealth Act) and registered with the Australian Securities and Investment Commission.
Setting up a Company Structure
To set up the correct structure will require detailed information of the director(s), shareholder(s) and office bearers being the Public Officer and Company Secretary. There are strict requirements laid down by ASIC as to who can hold these positions that must be adhered to. It is possible to set up a company with a sole director and single shareholder but regardless of your preferred option the implications of each must be fully understood.
Australian Company Number (ACN)
Unlike business names, once registered, a company name can trade throughout Australia. Every Australian company receives a unique nine digit Australian Company Number (ACN) which must appear on the company seal (if it has one) and every public document issued, signed or published.
The tax requirements for a company are quite different to the other business structures. It has its own tax income liability which is totally separate to individual income tax. Income tax is paid at a flat rate of 30% on taxable income.
Learn more about the tax requirements of an Australian company at the ATO website.
A company’s assets belong to the company and the company is liable for debts incurred which makes this type of business structure appealing to high risk business ventures.
Generally, the owner’s assets cannot be accessed to pay for any company debts or liabilities. However, there are some exceptions. Financial institutions may require a personal guarantee against loans or overdraft. A personal liability may arise if debts are caused recklessly, negligently or fraudulently.
A company can sue and be sued in its own right, but the director[s] can also be held personally responsible for offences under the Corporations Act 2001 or if they are found to have been negligent in performing their duties.
Proprietary and Public Companies
Companies may be formed as either private, also know as proprietary or public companies that are listed on the stock exchange.
If you wish to operate as a company you may require the assistance of a solicitor or an accountant to prepare the documentation.
Proprietary Company [Pty Ltd]
A proprietary company structure has no more than 50 non-employee shareholders and is generally not permitted to offer shares or securities to the public. It must have at least one shareholder and one director, and at least one director must ordinarily reside in Australia.
Public Company [Ltd]
A public company structure may have more than 50 non-employee shareholders, can offer shares and securities to the public, and may seek listing on the Australian Stock Exchange.
Company Formation in 7 easy steps
These 7 easy steps will help with the key decisions that need to be made and will streamline the company formation process.
Step 1: Decide which business structure is right for you.
Step 2: Choose your company name and business name if required
Step 3: Decide how you wish to operate your company
Step 4: What you need to do as an officeholder
Step 5: Assemble your team
Step 6: Register your company with ASIC
Step 7: Learn the legal obligations of your company name, ACN and ABN
Step 1: Deciding which business structure is right for you
It is recommended that you seek proper advice on the best business structure for your business.
The primary considerations should be to establish good protection from potential business risk and to ensure asset protection.
In addition, tax planning and succession planning may require the use of a Trust.
The best business structure option may include a company or a trust, or a combination of both to meet your circumstances and business goals.
Such an important decision requires legal or other professional advice to assess your current situation and plans for the future of your enterprise.
Step 2: Choose a company name
Your company needs a name. It should give the impression to your customers of what you do, but it must show its legal status and not be already registered by someone else.
For example, a proprietary company must include the word ‘Proprietary’ or the abbreviation ‘Pty’ in its name and must also outline the liability of its members, unless the members’ liability is unlimited.
To find out whether the name you want to use is available, you can use the ASIC website “Check Name Availability” search tool. The tool will confirm whether your proposed name is identical or similar to another name already registered.
Keep in mind that certain words and phrases cannot be used in company names without the approval of a specified Minister or government agency such as:
- ‘building society’
- ‘chamber of commerce’, and
You also cannot use words that may suggest a misleading connection with government, the Royal Family or an ex-servicemen’s organisation. And, of course, the name must not be considered offensive or suggest illegal activity.
Possible problems with similar names
You may also need to check if your proposed name is similar or identical to any registered or pending trademarks. You can check the IP Australia website to find out.
Even if you reserve or register a name for your company, a person or corporation with a similar registered name may still take action against you. It is your responsibility to be aware of any problems that might arise from names already registered which are similar to, or likely to be confused with, the name you register.
Step 3: Decide how you want to operate your company
Before you apply to register a company you must decide how the company will be internally governed, either by replaceable rules, or its own constitution, or a combination of both.
Your business advisor can help you to understand your requirements.
Step 4: Understand your legal obligations as an office bearer
If you are a director or secretary of a company, you must follow the requirements set out in the Corporations Act.
Company officeholders need to know what their legal obligations are, for example:
- ensuring company details are kept up to date
- maintaining various registers and records
- paying the appropriate lodgment and annual review fees to avoid late fees and non-compliance action.
The officeholders remain ultimately responsible for the company’s compliance with the Corporations Act.
Step 5: Get consent from officeholders, members and occupiers
Officeholders and members
Before applying to register a company you must get written consent from people who agree to fill the following roles:
- director (must be a person who is 18 years or older)
- secretary (must be a person who is 18 years or older), and
- member (every company must have at least one member).
A proprietary company must have at least one director but does not need to have a secretary. The director and secretary, if any, must ordinarily reside in Australia.
If your registered office will not be occupied by the company, but by, for example, your solicitor or accountant, then the occupier must give written consent for the company to use that address.
Keeping a record of consents and agreements
You must have the relevant consents and agreements when you lodge the application. You do not have to send them to us, but you must keep them as part of the company’s records after it is registered. You must also set up a register of members to record details about the members of your company.
Step 6: Company Formation requires registration with ASIC
All company formations are carried out using software that deals directly with ASIC and includes business name registration if a separate business name is required.
Once a company if formed by registering with ASIC, a company register is issued.
The company registration is completed by completing all of the of the director, shareholder and office bearer consents and issue of share certificates.
A full company secretarial service is available if required.
Step 7: Understand your legal obligations:
- When and where to display your company name
- How to use your ACN (or ABN) correctly
The company formation process is complete.
This website provides a general summary of the basic information about how to start and register a company. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. The omission of any matter on this information sheet will not relieve a company or its officers from any penalty incurred by failing to comply with the statutory obligations of the Corporations Act.
Action steps to take today
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