On this page
- What is a company?
- Key factors for choosing this structure
- Register as a company
Important: the differences between a 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're 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's 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's more expensive to register, so make sure it's really the best structure for your needs.
If you're unsure if this is the right business structure for your business, use our step-by-step guide below.
Key factors to consider
Legal obligations with the Australian Securities and Investments Commission
There are strict standards (under theCorporations Act 2001), which include reporting to members and the Australian Securities and Investments Commission (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 provides 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
A company has its own tax return and business Tax File Number (TFN).
Australian Business Number and Australian Company Number
A company's Australian Company Number (ACN) is a unique, nine-digit number issued by ASIC that offers identification while transacting business. It's 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's used in the same way as you'd use your ACN (i.e. appearing on documents, invoices, receipts etc).ASIC provides further information on where the ACN should be displayed.
Goods and Services Tax
When annual turnover passes $75,000, a company must register with the Australian Tax Office (ATO) to collect Goods and Services Tax (GST), as well as company tax.
A one person company can pay a salary to its owner. The ATO's 'personal services income' rules may apply if you're a consultant or contractor with your own company. The details of such an arrangement should be discussed with the ATO.
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 percent.
The ATO provides more details on company tax returns.
If the company has any eligible workers, it must pay a minimum of 9 percent of their ordinary time earnings as super guarantee contributions on their behalf. This includes you, if you're a director of the company, and any other company directors.
Pay As You Go, and Fringe Benefits Tax
If a company employs people, the company will have employer obligations, such as employee payroll tax and Pay As You Go (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'll need to:
- conduct a background check on your director and secretary to make sure they're legally able to perform their duties – the Australian Securities and Investments Commission (ASIC) provides more information on the suitability of company office holders
- 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
- register your business name.
- apply for the relevant licences and registrations
- find the right insurance for your business.
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