• Business Structure – Which One To Use and Why.

    When commencing a new venture, consider the most appropriate type of business structure to use. Different business structures have different benefits and disadvantages. This article looks at a company business structure – how to set one up and the pros and cons.

    Key Features of this Business Structure

    A company is a separate legal entity and a particular business structure capable of holding assets in its own name and liable for its own obligations. Furthermore, shareholders own a company and liability is limited to the amount of their shareholding guarantee. This means that shareholders can limit their personal liability and are not generally liable for the debts of the company.

    To clarify, it is the Directors that manage the day to day business affairs of the company. In other words, there are a number of duties and obligations for company directors including an obligation that a director must act in the best interests of the company.

    In Australia, the most common forms of company are:

    • Firstly, a Private company (or a proprietary limited company) is a company that which does not sell its shares to the public and cannot raise money from the general public through a share issue.
    • Secondly, a Public company is a company whose shares are owned by the public at large, with the company‚Äôs shares usually listed for trade on a stock exchange.

    Australian Securities Investment Commission (ASIC) is the regulatory body. Corporations Law is the applicable legislation.

    How to Set up a Company

    When ASIC registers a company, the company will be given an Australian Company Number (ACN). Furthermore, an application must nominate a principal place of business and registered office for the company.

    Prior to lodging an application for registration, give consideration to the following:

    • understand the legal requirements of this business structure
    • the proposed company name. Check to confirm the availability of the proposed name.
    • what rules will apply to govern the company? This can generally be the replaceable rules from the Corporations Act (which means that the company does not require its own written constitution), a constitution or a combination of the two.
    • who will be the shareholders and directors of the company?

    Additionally, a company will need a Tax File Number (TFN) and an Australian Business Number (ABN). Obtain the numbers from the Australian Taxation Office (ATO) and the Australian Business Register (ABR).

    Similarly, the ATO requires that a company must be registered for GST if its annual turnover is $75,000 or more.

    Business Structure – Pros and Cons

    The advantages of forming a company business structure include:

    • limited liability for shareholders
    • easier to raise finance for expansion
    • ownership is easily transferred
    • taxation rates can be favourable

    The disadvantages of this business structure include:

    • expensive to form, maintain and wind up
    • reporting requirements can be complex
    • must publicly disclose key information
    • owners cannot offset losses against other income

    Conclusion

    To conclude, a company is a suitable business structure for parties that are unrelated and want limited liability.

    Remember however that establishing a company will incur costs for ongoing administrative and compliance. An accountant or lawyer can help you understand the cost and risks of a company and explain whether a company structure would be suitable for your business going forward.

    If you or someone you know wants more information or needs help or advice, please contact us on 02 9955 6692 or email admin@hslegal.com.au.

Call Now
Directions
Lawyers Available to Help Now!

Need to speak with a Lawyer? Please complete the form and one of our legal representatives will contact you shortly.

X
Speak to a Lawyer