What Is a Company and Why Choose This Structure?

A company is a legal entity that is separate from its operators and owners. Companies have the same rights as a natural person and are liable to debt and individual legal responsibilities. If you run your business through a company structure, the company’s shareholders own your business, and the directors inform its operations. By setting up a company, you can: 

• enter into agreements; 
• engage employees; and 
• own assets, including intellectual property.

This article will explain what a company is, the role of company officers and shareholders, and why choosing a company structure is right for you.

Types of Company Structures

In Australia, the two key company structures are:

1. companies limited by shares (including private or proprietary companies and public or publicly held companies); and
2. companies limited by guarantee.

The Pty Ltd company structure is more common.

Company Officers

Company officers, also known as directors and company secretaries, manage a company’s business and governance matters. They are subject to the company’s shareholders agreement or company constitution. Company directors govern the business through meetings that are subject to the company’s constitution, shareholders agreement and the law. If a company has neither a shareholders agreement nor a constitution, provisions within the Corporations Act 2001(Cth) apply.

Additionally, company officers, including directors, may be personally liable if a court finds them in breach of their legal obligations. 

A company secretary commonly fulfils an administrative role for the company. Like a director, the secretary has specialised corporate responsibilities and duties regulated by the governing legislation.

Shareholders

All companies require at least one shareholder. Shares can be either fully paid or partly paid. Shareholders are liable to pay any unpaid amounts on the shares that they hold. A fully paid share has no unpaid amount for the share. 

Why Choose a Company Structure

The company structure limits liability and provides flexibility for business growth. This is because it allows investors to fund the company in return for shares, representing an ownership stake. Your company can sell its shares, allowing investors to realise the profits of a company’s growth. 

Additionally, company incorporation is internationally accepted and may confer a perception of scale and industry experience. Also, note that your company must pay tax at the corporate tax rate, currently 27.5% for small businesses. 

Process of Incorporating a Company

The Australian Securities and Investments Commission (ASIC) is the national body responsible for the registration of companies. Firstly, you will need to pay an initial registration fee and complete an ASIC Form 201, ‘Application for Registration as an Australian Company’. There are also set-up and administrative costs associated with incorporating a company.

Key Takeaways

A company structure is very beneficial if you seek to limit personal liability while ensuring flexibility for your business’ future growth. As a company, you will have access to a reduced tax rate as the company tax rate is generally lower than the individual tax rate. If you decide that a company structure is suitable for you, it is crucial to understand your intended ownership arrangement and comply with company regulation and financial reporting requirements. 

If you would like advice on which corporate structure best suits you and your business or require assistance with incorporating your new company, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions