When commencing a business venture, it is necessary to consider
the most appropriate type of business structure to put in place.
Different business structures have different benefits and
disadvantages. This article looks at companies - how to set one up
and the pros and cons of a company structure.
A company is a separate legal entity capable of holding assets
in its own name and liable for its own obligations. A company is
owned by shareholders. The liability of shareholders is usually
limited to the amount of their shareholding guarantee. This means
that shareholders can limit their personal liability and are not
generally liable for the debts of the company.
Directors manage the day to day business affairs of the company.
There are a number of duties and obligations for company directors
including an obligation that a director must act in the best
interests of the company.
In Australia, the most common forms of company are:
Private company (or a proprietary limited company): this is a
company which does not sell its shares to the public and cannot
raise money from the general public through share issue.
Public company: is a company whose shares are owned by the
public at large, with the company's shares usually listed for
trade on a stock exchange.
Companies are regulated by the Australian Securities Investment
Commission (ASIC) and governed by the Corporations Law.
How to Set up a Company
An Australian company must be registered with ASIC. When ASIC
registers a company, the company will be given an Australian
Company Number (ACN). An application must nominate a principal
place of business and registered office for the company.
Prior to lodging an application for registration, consideration
should be given to:
the proposed company name. A check should be undertaken to
confirm the availability of the proposed name. If no name is
specified in the application, the company will be referred to by
what rules will apply to govern the company. This can generally
be the replaceable rules from the Corporations Act (which means
that the company does not require its own written constitution), a
constitution or a combination of the two.
who will be the shareholders and directors of the company.
A company needs its own Tax File Number, which can be obtained
online from the Australian Taxation Office (ATO) and an annual tax
return must be filed.
A company must be registered for GST if its annual turnover is
$75,000 or more. An Australian Business Number (ABN) is required to
register for GST and can be obtained online.
Pros and Cons
The advantages of forming a company include:
liability for shareholders is limited
easier to raise finance for expansion
ownership can be easily transferred
taxation rates can be favourable
The disadvantages include:
expensive to form, maintain and wind up
reporting requirements can be complex
must publicly disclose key information
owners cannot offset losses against other income
A company might be a suitable business structure for unrelated
parties who want to commence a business venture together, where
there is a degree of risk and limited liability is wanted or where
there is a desire to list the company on the stock exchange.
Establishment of a company and ongoing administrative and
compliance costs associated with the Corporations Law can be high.
An accountant or lawyer can help you understand the cost and risks
of a company and explain whether a company structure would be
suitable for your business going forward.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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