A company is a separate legal entity capable of holding assets in its own name, conduct a business in it's own right, and it can sue and be sued. 

Shareholders own the company while directors run the company. In many cases company directors are also shareholders, along with company 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

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

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. A company pays income tax at a flat rate of 30% on taxable income.

• Learn more about the tax requirements of an Australian company at the ATO website

Company liability

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 overdrafts. 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 company director 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.

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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

A proprietary company 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

A public company 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.

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Advantages and disadvantages of a company structure

Advantages

• Limited liability for shareholders/owners.
• Company structure is commercially well understood and accepted.
• Ability to raise significant capital.
• Profits can be reinvested in the company or paid out to the shareholders as dividends.
• Easy to sell and pass on ownership.
• Company can carry forward losses indefinitely to offset against future profits.

Disadvantages

• Significant set up costs and maintenance costs.
• Limited or no control of company affairs.
• Complex reporting requirements.
• Company can't distribute losses to it's shareholders.

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What's next...

• Register a business name
• How feasible is your business idea?
• Get started on your business plan

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