You have an idea and the skills to start and manage a business, so what now? If you’re ready to start your own company, you can register online today – and from the comfort of your own home. Here are some of the steps to follow when you are on the path to starting your own company in Australia.
1. Decide the Right Structure for You
There are a number of business structure options you should consider before you decide on creating a company. The four main types are:
- sole trader;
- trust; and
Each has its pros and cons, and it is best for you to carefully consider the structure best suited to your business needs. These structures will have an impact on the licences you will require, and have tax and legal obligation implications.
(a) Sole Trader
The structure is suitable for individuals intending to operate as the sole person legally responsible for all aspects of business. It is inexpensive to start up and easy to maintain and requires less paperwork than other structures
Furthermore, sole traders have greater control over the management and direction of their business and are subject to fewer government regulations and statutory provisions. Similarly to other structures, sole traders can also hire employees. There are potential disadvantages to choosing this structure, such as personal liability for debts and inability to raise capital by offering shares to the public, comparatively higher tax rates than other structures and limited tax concessions.
A partnership refers to an association of people running a business together, though not as a company. Partnerships can be easier and less expensive to set up and operate than other structures, offer greater privacy than companies regarding public profit disclosure and are straightforward to restructure to a company. As an association of people, partnerships also provide a knowledge base to draw on concerning the combined expertise of those people. Similarly to sole traders, tax is charged at the personal rate, and all partners are liable for business debts irrespective of the partner who incurred the debt. Furthermore, there is less control over the management and direction of the business, especially when differences of opinion arise between partners.
A trust structure allows for an entity to hold property or income for the benefit of others. This structure distributes income to its beneficiaries and follows the provisions set out in the trust deed. A trust provides greater privacy than a company, can attract tax concessions and has flexibility in its distributions among beneficiaries. This structure is complex, though, and there can be issues with borrowing due to additional complexities of loan structures. They can also be expensive to establish and maintain, and the power of trustees may be restricted by the trust deed.
A company is a legal entity separate from its shareholders or officers, and can be run as a proprietary (private) or public company. Unlike sole traders and partnerships, shareholders have limited liability for business debts, though failure to meet legal obligations may mean an individual is held personally liable for those debts. These structures are typically more financially secure as well, with public companies able to raise capital by trading securities in itself to the public. Companies are also subject to lower tax rates. On the flip side, companies are subject to greater regulatory rules, disclosure arrangements and reporting requirements. They can be expensive to establish, maintain and wind up, and profits distributed to shareholders are taxable.
2. Choose a Business or Company Name
Should you opt to continue with a company structure for your business, you will need to register a name. Though it sounds simple, there are several things to be aware of at this stage.
If a business name already in use by another company or business, you will not be able to use it. To assist you in registering a unique name, you can use the ‘Check Name Availability’ tool on the ASIC website to confirm its availability.
As well as ensuring it is not already in use, you may need to check if your proposed name is similar or identical to any registered or pending trade marks. There is a search tool to assist with this on the IP Australia website called ATMOSS.
(c) Company type
A company’s name must show its legal status. Proprietary companies must include the word ‘Proprietary’ or its abbreviation ‘Pty’ in its name. For limited liability companies, where member liability is limited to the amount unpaid on their shares, the company name must end with ‘Limited’ or its abbreviation ‘Ltd’.
(d) Prohibited terms
Some words or phrases cannot be included in a company name without approval of a specific Minister or government agency. These may include, but are not limited to:
- Building society;
- University; and
Words alluding to a royal connection, connection with government, illegal conduct or of an offensive name will also be refused registration.
(e) Reserve a Name
If you have a name but aren’t ready to register your company yet, ASIC provides a reserve-a-name service. For a fee, ASIC will reserve the name, if approved, for a two month period. This can be extended if necessary by lodging a second application within the initial reservation period, and paying a second reservation fee.
3. Decide How to Operate your Company
Starting your own company will also require a decision to be made on the manner in which it will be internally governed. Companies may operate under replaceable rules, its own constitution, or a combination of the two.
Replaceable rules are included in the Corporations Act 2001 (Cth) (Corporations Act) and are considered the basic rules for internally managing a company. Should you adopt your own constitution, you will be responsible for maintaining a written copy with the company records and for ensuring it is kept up-to-date with the law. It is recommended you conduct your own research into the internal governance best suited for your needs.
4. Understand Your Legal Obligations
As a director or shareholder, you will be subject to certain legal obligations set out in the Corporations Act, such as maintaining records, ensuring company details are up-to-date, issuing annual statements and paying appropriate lodgement and annual review fees. There are also fiduciary duties you must comply with, which are also set out in the Act. These legal obligations may vary depending on whether your company is public or proprietary, so ensure you do your research before you begin trading to avoid non-compliance in the future.
5. Know your Regulator
ASIC is Australia’s corporate, markets and financial services regulator, and is responsible for ensuring Australia’s financial markets are fair and transparent and enforcing and giving effect to the law. They also receive, process and store information provided to them, and make corporate information available to the public as soon as practicable. To ensure your company has the best start in life, jump on the ASIC website and take the time to become familiar with your regulator.
If you have any questions about starting a business or company, get in touch with our business lawyers. Get in touch by filling out the form on this page.