A company is a type of entity which has a separate legal existence from that of its owners. This means that it has the same rights as a natural person and can incur debt, sue and be sued. Consequently, many people choose a company structure when establishing their business. The article will set out what is a company. It offers basic guidance on the types of company structures available, roles of shareholders and company officers, the benefits of this structure and how to incorporate a company.
Types of Company Structures
In Australia, there are two main types of company structures:
1. Companies limited by shares (which includes private or proprietary companies and public or publically held companies); and
2. Companies limited by guarantees.
The most common company structure and the one which most business owners select is a proprietary limited or Pty Ltd company structure.
A proprietary limited company does not sell its shares to the public and can have no more than 50 non-employee shareholders. A public company, on the other hand, sells shares to the public and can have as many shareholders as it wishes. It will also have the abbreviation Ltd after its name. In both of these structures, the limit on the liability of its shareholders is the value of the shares. Non-trading organisations such as sporting clubs and charitable organisations typically use a company limited by guarantee.
Shareholders and Company Officers
A company’s owners are known as shareholders or members. All companies must have at least one shareholder. A shareholder can either wholly or partially pay shares. A fully paid share means that there is no amount outstanding for the share.
Company officers, also known as directors and company secretaries, manage a company. The directors of a company manage the business through meetings subject to the company’s constitution, shareholders agreement and the law. The company secretary generally completes administrative tasks for the company and like a director, has specific corporate responsibilities under the governing legislation.
Why Choose a Company Structure?
Directors and shareholders of a company are usually not personally liable for the debts of the company except for in some cases. You can read our article to find out more about when directors and shareholders are personally liable. People will often use a company structure to protect their personal assets and for the corporate tax rate which is currently 30%.
Registering a Company
ASIC is the Australian body responsible for the registration of companies. To register a company, you will need to pay an initial registration fee and complete an ASIC Form 201, ‘Application for Registration as an Australian Company’. It is important that you fill out this form correctly as ASIC may charge penalty fees for errors.
If you would like advice on which corporate structure best suits you and business or require assistance with incorporating your new company, let our commercial team know on 1300 544 755.