A company is a common type of business owning and operating structure. It is a legal entity that exists independently of its owners that can conduct business anywhere in Australia.
The company's owners are referred to as members or shareholders. A company's legal status grants it the same rights as a natural person - allowing it to acquire debt, sue, and be sued. Company officers, known as directors and company secretaries, oversee running the company.
A proprietary limited company ('Pty Ltd') is a business structure that many business owners adopt. This form of corporation has limited liability for shareholders and does not sell its stock to the public.
- Limited liability - because the company is its own legal entity, shareholder liability is limited - often not individually accountable for the company's debts. However, a company's owners (shareholders) may still be liable for its obligations, such as when they gave personal guarantees to borrow money.
- Lower tax rate - Private companies currently enjoy a flat 27.5% tax rate where annual turnover of a company is less than $50m.
- Shareholder rights - (often family members) can be employed by the company with flexible income tax rules on distribution of income. Enjoy the use of tax credits the company pays which may be passed on to shareholders (i.e no double taxation on company profits in the hands of shareholders in most cases).
- Broad Operation - The company can trade anywhere in Australia, and a private company can also trade in overseas jurisdictions.
- Favourable taxation rates then personal individual tax rates.
- Grants - Access to grant concessions (such as Research & Development and Export Development Grant) which are generally available only to private companies (not sole traders).
- Higher start-up costs and more expensive to establish, maintain and wind up than, say, a sole trader business.
- Reporting requirements can be more complex.
- Financial affairs of the company are governed by ASIC and certain information about directors and shareholders can be viewed by the public.
- There are additional legal obligations that corporate directors must comply with under the Corporations Act. If company directors fail to meet their legal obligations, they may be held personally liable for the company's debts.
Who can register an Australian company?
Anyone can. You must, however, have at least one director who resides in Australia and a physical Australian address for the registered office of the company. If none of the directors are eligible to work in Australia, you will be able to register a company, but the company may not be able to trade.
Steps to Register a Company
1. Is the Company Appropriate?
You must firstly determine whether a company structure is appropriate for your needs or if a different kind of business owning and operating structure.
2. Choosing a Company Name
Choose a company name that is available and not already registered on the Australian Securities and Investments Commission (ASIC) registry.
It is forbidden to use phrases that could lead to misunderstandings regarding a company's operations. This includes links with, say, the Australian government. A name can also be rejected if it is deemed derogatory or implies criminal behaviour.
Even if ASIC reserves or registers a name for you, a company with a similar trademark or name may take action against you for doing so. From a legal perspective, it is your responsibility to be aware of any similar names or trademarks that may affect the name you choose.
3. How will the Company Operate?
It is necessary to determine how the company will run and what rules will apply before registering.
The Corporations Act contains replaceable rules, which are a set of standard rules for governing the company and are often used instead of a constitution (if, for example, a corporation does not require its own constitution). This eliminates costs of keeping the constitution up to date as the law changes and develops.
Alternatively, a company can have a written constitution that documents a company’s governing rules which is usually much more comprehensive than the replaceable rules.
Special Rules for Sole Director or Member Proprietary Companies
If a proprietary company only has one officeholder and member, no replaceable rules or constitution are required. The replaceable rules under the Corporations Act apply to the company automatically if another director or member is appointed. This position can also be modified with a constitution.
4. Registering Company
To remove the risk of error during the application process, it is best for a lawyer to register your company for a reasonable fee in addition to what ASIC would charge for company registration.
Following ASIC's review of the company registration application, ASIC will:
- Issue the company with an ACN – Australian Company Number (which can be used to apply for an ABN);
- Register the company;
- Issue a certificate of registration; and
- Send the company's corporate key to the nominated contact.
5. After the Company Is Registered
After the company is registered you need to make sure that:
- the company's name is prominently displayed wherever it conducts business and is accessible to the general public;
- the ACN and ABN of the company appears on all documents it publishes; and
- the company’s details are maintained with ASIC and in the company register, and are kept up to date.
ASIC will send an annual statement to the company’s registered off after the annual review date usually on the anniversary of the date you registered the company. In this annual statement, you will need to pay ASIC the annual company fees, check and update the company’s details and pass a solvency resolution for the company.
At Burke Lawyers our Commercial lawyers have extensive experience in dealing with all aspects of business, contract & corporate law including how to register and set up a company.
If you have any questions or would like to find out how our commercial lawyers can assist you, contact us today on +61 3 9822 8588.