A company is a separate legal entity and can incur debt, sue and be sued. The company’s shareholders (the owners) can limit their personal liability and are generally not responsible for company debts.
A company is a complex business structure and has high set-up and reporting costs. You can form a company as either a private (also known as proprietary) or public entity.
A registered company must have at least one director (and a company secretary unless it is a private company). A director is responsible for managing the company’s business activities.
To become a company, an entity must:
- be incorporated under the Corporations Act 2001
- be registered with the Australian Securities and Investment Commission (ASIC).
More information on starting a company is available from the ASIC website.
Advantages of a company
- Limited liability for shareholders.
- Well understood and accepted structure.
- Able to raise significant capital.
- Can carry forward losses indefinitely to offset against future profits.
- Easy to sell and pass on ownership.
- Profits can be reinvested in the company or paid to the shareholders as dividends.
Disadvantages of a company
- Significant set-up and maintenance costs.
- Do not retain complete control.
- Complex reporting requirements.
- Can’t distribute losses to its shareholders.
Other factors to consider
The tax requirements for a company are different to those of other business structures. A company pays income tax on its income (or profits) at the company tax rate. There is no tax-free threshold for companies and tax is paid on every dollar earned.
Visit the ATO website for more information regarding your tax obligations as a company.
Company officers and directors have legal obligations that specify how they perform their duties and manage the company’s affairs. These obligations are outlined in the Corporations Act 2001.