What is a company?
A company has members (shareholders) who own the company and directors who run it. But 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.
Unlike a sole trader business structure where you are solely responsible for all aspect of the business including debts, losses and day-to-day business decisions, a company is a separate legal entity. This means the company has the same rights as a natural person and can incur debt, sue and be sued. This takes the liability off you as a company owner but a company is more expensive to register and more complicated to run, so make sure it's the best structure for your needs.
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 such as 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.
The Australian Securities and Investments Commission (ASIC) has more information on your legal obligations as a company.
How to register as a company
If you decide that starting a company is the right choice, follow these steps to register:
- Conduct a background check on your director and secretary to make sure they're legally able to perform their duties perform their duties as an officeholder.
- 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 and check the name is available.
- Check IP Australia to make sure the name doesn't infringe on existing trade marks.
- Use the Business Registration Service to register your company and apply for any licences and registrations that you need.
- Find the right insurance for your business.
Legal compliance and liability
Legal obligations to ASIC
Companies must abide by strict standards under the Corporations Act 2001 (the Act). One of these standards involves reporting to members and ASIC.
Find out more about your obligations when running a company on the ASIC website.
Legal liability of a company and directors
Companies have limited liability but directors can be personally liable under the Act if they're found to be fraudulent, negligent or reckless.
Because of its limited liability, a company structure may be well-suited to a high-risk business. However, major creditors often insist that directors personally guarantee the company's liabilities.
Personal liability of directors and employees can also arise if they commit an offence under the Act, or are found to have negligently performed their duties. A company can sue, and be sued in its own right.
Licences and registrations for a company
Australian company number (ACN)
A company's Australian company number (ACN) is a unique, 9-digit number issued by ASIC that offers identification while transacting business. You must legally display your ACN on a range of documents, including:
- official company notices
- business letterheads
Australian business number (ABN)
If your company already has an Australian business number (ABN), you can use the ABN in place of the ACN, as long as:
- your ABN includes your 9-digit ACN
- it's used in the same way as your ACN (for example, it appears on invoices, receipts and other documents)
Tax file number (TFN)
A company has its own tax return and business tax file number (TFN).
There's a difference between a company name and a business name.
A company is an independent legal entity that's able to do business in its own right. Registering your company gives you exclusive rights to its name in Australia. This means another company or business can't use your company name.
A business name is the name under which a person or entity trades or conducts business. If the name that you trade under is different to your company name, you'll need to register it as a business name.
Registering a business name doesn't give you exclusive rights to it. You must also trademark the business name if you want to prevent someone else from using it.
Other licences and permits
Check the Australian Business Licence and Information Service (ABLIS) to find other local, state and federal licences, registrations and permits that you need for your business.
Other things to consider
GST and personal services income
When annual turnover passes $75,000, a company must register with the Australian Taxation 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. You should discuss this with the ATO.
Income tax on profits
A company is subject to tax 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%.
The ATO provides more details on company tax returns.
If a company employs people, the company will have employer obligations, such as:
- employee payroll tax and pay as you go withholding (PAYG), including reporting and paying tax on fringe benefits
- superannuation payments for any eligible employees
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're a director of the company – and any other company directors.