So, you’ve decided a company best suits your business needs. But have you considered setting up a one or two company structure? Is your proposed company name available? How will you internally govern your business? Below, we outline six steps you need to consider.
1. One Company v Two Company Structure
You can choose to run your business through one company that:
- Trades on the business’ behalf;
- Enters into business contracts with third parties;
- Owns the business’ assets and liabilities including the intellectual property; and
- Hires the contractors or employees.
Alternatively, you could set up a holding company and a subsidiary operating company. The holding company would hold 100% of the shares in the subsidiary, and would own all the business’ assets and intellectual property. The subsidiary would then be the operating company and would not hold any assets or intellectual property of the business. It would operate in the same way as we described above.
Each structure presents its own advantages and disadvantages. However, a significant advantage of the two company structure is the protection it affords the assets of the business.
2. Company Registration v Business Name Registration
In Australia, you only need to register your company once to conduct business in any State and Territory. Registering a business name, on the other hand, is different and does not create a legal entity or have the same privileges of a company (i.e. limited liability or a corporate tax rate). If you run the business in your own name (i.e. first and last name, initials and surname), you do not need to register a business name.
3. Choosing Your Company Name
You cannot choose a company name that another company or business has already registered. You can complete a free check yourself to see if your chosen name is available on ASIC’s website. We also recommend completing a free search on IP Australia’s website. You can also choose not to give your company a name, and to use the ACN provided to you on registration.
4. The Operation of Your Company
Ideally before registration, you should decide how you will internally govern your business through using replaceable rules, a company constitution or a combination of both. Importantly, there are special rules for the internal governance of sole director/member proprietary companies.
5. Shares in Your Company
A proprietary company must be either:
- Limited by shares; or
- An unlimited company that has a share capital and no more than 50 non-employee shareholders.
If there is more than one shareholder in the company, in addition to the company constitution or replaceable rules, we recommend shareholders enter into a Shareholders’ Agreement. A Shareholders’ Agreement is a contract between the company’s shareholders to govern their relationship and business arrangements. It also sets out:
- Shareholders’ and Directors’ rights, responsibilities, obligations, and liabilities;
- How decisions are made;
- How to resolve disputes;
- Requirements to issue new shares;
- Selling shares; and
- Exiting the business.
A comprehensively drafted Shareholders Agreement can also help prevent disagreements and resolve disputes.
6. Your Legal Obligations
Once you have incorporated your company, you must display its name at every place that you carry on your business, and that is open to the public. Further, you must show your ACN or ABN on:
- Every public document issued, signed or published by, or on behalf of, the company;
- Every eligible negotiable instrument issued, signed or published by, or on behalf of, the company, and
- All documents you must lodge with ASIC under the Corporations Act.
Questions? Get in touch 1300 544 755.
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