Starting your own business is always a big decision. It can be all the more nerve-wracking when you decide to structure your business as a company. The paperwork necessary to start a company can sometimes be daunting. If you would like to start a company, this article discusses how you can determine if it is the right structure for you and how you can do it.
Is a Company Structure Good For You?
Before you begin the process of starting a company, you need to be sure that its structure suits your individual needs. There are many ways to structure a business: a partnership, as a sole trader or via a trust. No one structure is necessarily better than another. Their different characteristics mean that certain structures often suit the needs of a business owner better than another.
Whether a company structure is fit for your business requires knowledge of how it works.
A company is an independent legal entity. At law, it is a legal person capable of suing and being sued. It has perpetual succession, and it need never end. A company holds assets in its name and can enter into contracts.
There are different types of companies, but the most popular kind of company is one limited by shares. These can be either proprietary or public.
A company limited by shares is attractive because it offers shareholders limited liability. Their liability for any debts of the company is limited to the extent of any unpaid shareholdings. The reason this is so popular is that it means that the company’s creditors cannot access the personal assets of shareholders to satisfy debts.
The two principal actors in a company are the shareholders and the directors. The shareholders contribute capital. They have no role in the company’s daily operations beyond electing company directors at an annual general meeting.
Conversely, company directors are responsible for managing the company. They have responsibilities to shareholders, and the Corporations Act 2001 (Cth) imposes duties upon them (directors duties). Regulators view breaches of these duties seriously.
How To Set Up a Company
Setting up a company is a process. It requires time, diligence and patience.
The first step in setting up a company is choosing a name. Your name will need to detail your legal status. For example, if your company is a proprietary company, your name must include Pty at the end. The website for the Australian Securities and Investment Commission (ASIC) has a list of approved abbreviations.
Your name must differ from names already registered by other companies. You can check the availability of your name on the ASIC website.
If you wish your company name to be the same as a registered business name that you own, you can only do so in particular circumstances. For example, if the business name holder is an individual, a company can only use that name if that same person is a proposed director or member of the company. Guidelines are available on the ASIC website.
Regulations prohibit the use of some words in a name unless you have official permission (such as building society). You also cannot incorrectly suggest a link to government, royalty or an ex-servicemen’s organisation.
Of course, you need not choose a name immediately. ASIC issues all companies with an ACN to identify them. However, it is advisable to reserve your name when you decide on one to prevent another company from using it. You pay a fee and ASIC reserves the name for a particular period.
The next step is deciding on internal governance. Internal governance is the set of rules which guide your company. You can use the Replaceable Rules (which are provided for in the Corporations Act 2001 (Cth)), a company constitution, or a mixture of both. However, if your company is proprietary with one member and one director, it cannot use the Replaceable Rules. There are specific requirements for these companies.
As part of the registration process, it will be prudent to understand all your legal obligations as an officeholder of the company. Officers are directors and secretaries. Company directors and secretaries are responsible for fulfilling all their legal obligations under the Corporations Act 2001 (Cth).
Furthermore, you must also get the consent of all officeholders and shareholders. Officeholders and shareholders must agree to act in these positions. All companies must have at least one shareholder.
Further, if the registered address for your company will not house your business (for example, it could be your accountant’s address), you will need their consent as well. They become an occupier of the company. You will need all these permissions before registering your company so be sure to keep a written record of all of them in a safe place. You must keep them after registration as company records. You will also need to set up a register of members.
You can now register your company. If you apply, the correct form is on the ASIC website. You could also employ a business service provider. Once ASIC receives your application, they will register your company, give it an ACN and issue a certificate of registration. You must display the certificate wherever you conduct business.
How To Start a Company: Final Note
An ACN is not an ABN. An ABN is a number issued to all kinds of business enterprises for their interactions with government (i.e. the Australian Taxation Office). You can apply for an ABN once you have an ACN. The last nine digits of your ABN will be your ACN. Starting a company is a considerable undertaking. Legal advice and assistance will help you to understand your legal obligations and can prevent difficulties later on.
Contact LegalVision’s business lawyers to assist you. Questions? Call us on 1300 544 755.