On this page
- What a company is
- Key factors for choosing this structure
- Register as a company
Differences between business name, company name and trading name
A business name is simply a name or title under which a person or entity conducts a business. You must register for a business name unless you are trading under your own name. A business name is the same as a trading name. Registering a business name does not give you exclusive rights to use it.
A company is an independent legal entity that is able to do business in its own right. A company name gives you exclusive rights to that name in Australia.
A company has members (shareholders) who own the company and directors who run it. However, if you're an independent contractor you can set up a 'one person company' with a sole director and member. Companies can also be listed as public companies, meaning the public can buy shares to invest in the company.
It is more expensive to register so make sure it's really the best structure for your needs.
If you are unsure if this is the right business structure for your business, use our guide.
Key factors to consider
Legal obligations with ASICThere are strict standards (under the Corporations Act 2001), which include reporting to members and ASIC.
Legal liability of a company
Companies have limited liability, but directors can be personally liable under the Corporations Act 2001 if found to be fraudulent, negligent or reckless.
Due to limited liability, a company structure may be advantageous to a high-risk business. However, major creditors often insist directors personally guarantee the company's liabilities.
Personal liability of directors and employees can also arise if they commit an offence under the Corporations Act 2001, or are found to have negligently performed their duties. A company can sue and be sued in its own right.
Proprietary and limited companies
A proprietary company must have no more than 50 non-employee shareholders and be either limited by shares or an unlimited company that has a share capital.A company limited by shares, limits the liability of shareholders to the value of their shares. This structure is suitable for most trading businesses. A company limited by guarantee is most often used by non-trading organisations, for example, sporting clubs.
'Proprietary' or 'Pty' must be included in a company name to indicate legal status as a company. 'Limited' or 'Ltd' also needs to be included in a company name if it's a limited liability company.
ASIC has more information on your legal obligations as a company, including rules governing the selling of shares, the keeping of company and financial records, and registers and preparing.
Tax File Number (TFN)
A company has its own tax return and business Tax File Number (TFN).
ABN & ACN - what's the difference?
A company's ACN is a unique, nine-digit number issued by ASIC that offers identification while transacting business. It is a legal requirement for the ACN to be displayed on a range of documents, including invoices, official company notices, cheques and business letterheads.
If your company already has an ABN, you can use the ABN in place of the ACN, provided that your ABN includes your nine-digit ACN, and it is used in the same way as you would use your ACN (i.e. appearing on documents, invoices, receipts etc).ASIC's website gives further information on where the ACN should be displayed.
Goods and Services Tax (GST)
When annual turnover passes $75,000, a company must register with the Tax Office to collect GST as well as company tax.
A one person company can pay a salary to its owner. The Tax Office's 'personal services income' rules may apply if you are a consultant or contractor with your own company. The details of such an arrangement should be discussed with the Tax Office.
A company is subject to taxation in its own right, paid quarterly to the ATO. Members receive a credit towards the tax on dividends equal to the relevant amount of tax paid by the company. A company pays income tax on its profits, this general rate is 30%.
For details on company tax returns visit the ATO website.
If the company has any eligible workers, it must pay a minimum of 9% of their ordinary time earnings as super guarantee contributions on their behalf. This includes you, if you are a director of the company, and any other company directors.
Pay As You Go (PAYG) witholding, Fringe Benefits Tax (FBT)
If a company employs people, the company will have employer obligations, such as employee payroll tax and PAYG (including reporting and paying tax on fringe benefits) and paying superannuation payments for any eligible employees.
Register as a company
After considering the pros and cons, to register as a company, you will need to:
- do a background check on your director and secretary to make sure they're legally able to perform their duties. More information on the suitability of company office holders can be found in the Australian Securities & Investments Commission (ASIC) Starting a Company section
- ensure all members of the company understand their roles, responsibilities and legal obligations towards ASIC
- decide if you want to give your company a name
- check that your proposed business name doesn't infringe on existing trademarks - use TM Check to find out
- register your business name.
- apply for the relevant licences and registrations
- find the right insurance for your business.
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