What is a Company?
A Company is a legal entity recognised under the Australian law. This means a company has its own rights and obligations as it operates under the law like an individual. It can also buy/sell/own properties/assets, enter into contracts and legal situations e.g. suing or be sued by another legal entity.
Companies are also business structures governed by the Corporations Act 2001 and regulated by the Australian Securities and Investments Commission (ASIC). Since a company is its own legal entity, its directors and shareholders can limit their personal financial liability (such as company debts) depending on the company structure. In Australia, there are two primary company types: Propriety (Private) Companies and Public Companies. These two company types further subcategorise into:
- Limited Propriety Companies, where capital is limited by shares;
- Unlimited Propriety Companies, where capital is not limited by shares;
- Limited Public Companies, where capital is by either guarantee or shares;
- Unlimited Public Companies, where capital is not limited by shares; and
- No Liability Public Companies, where shareholders are not personally liable to pay calls on unpaid shares.
No Liability Public Companies are solely mining / resource companies as defined under the Corporations Act 2001. Due to its specific nature, this type of company is not relevant to most business owners.
Why do you need a Company?
In Australia, you only need to register for an Australian Business Number (ABN) to begin conducting business. Although it is not a necessity to establish a Company for your business, it is something you should seriously consider depending on the scale and nature of your business. Most business
owners establish a company for some or all three of these key reasons:
- Limit your personal legal & financial risks and liabilities;
- Clarify financial activities and income/expense distributions;
- Allow more flexibility on tax planning and tax effective strategies;
- Issue shares to raise capital from investors; and
- Prepare for succession planning such as to selling the company by transferring shareholder name.
Note on Company Director’s liabilities:
Although establishing a company allows you to differentiate financial and legal liabilities between you and the company, under certain circumstances as the director of a company you may be personally held liable for the company’s debts and/or losses. A director’s responsibilities and obligations to the company usually ends after ASIC deregisters the company but it may continue depending on your specific circumstance. It is best to speak with a legal professional in this area if you have more questions about this before establishing a company.
Different company structures are suitable for different purposes; the level of complexity and costs involved in establishing and maintaining them also varies. It is best to consult a qualified accountant who specialises in company establishment to ensure your business is setup appropriately at the beginning. C Advisory can help you to clarify your need for establishing a company, prepare financial statements and restructure your business should you decide to change your business structure to reflect your business growth.