We recommend the company structure for medium to large businesses as it is a separate entity to the owners
A company is a separate legal entity from you, and has at least one shareholder (owner) and one director (who runs the business). Income and losses belong to the company. Companies can employ staff.
A company structure has higher costs and is more difficult to set up. Running a company can also be more expensive, because you have to meet reporting and other requirements under Australian company law. This is why the structure is generally considered to be better suited to medium to large businesses.
A company structure means that your business is a separate legal entity from you. This means the company has the same rights as a natural person and can have debt, sue and be sued. A company is owned by its shareholders and run by its directors.
The personal assets of directors and shareholders are separate from the company, so they can't be used to pay company debts. In certain cases where directors breach their duties, they may be held personally responsible for company losses.
The income and losses that the business makes belongs to the company, and is reported on a company tax return. The company tax rate and further information can be found at the following link.
A company needs its own TFN.
If the company employs staff, the company is responsible for giving them their minimum employee entitlements and conditions (such as superannuation and leave).
Companies must appoint a public officer and let the Australian Taxation Office (ATO) know. Public officers are responsible for making sure the company complies with tax law, keeping tax records and submitting company tax returns. The ATO needs to know their details so they can contact them about company tax matters.
Proprietary Limited Companies
Companies can be proprietary (private) or public. Most companies in Australia are proprietary limited. A proprietary limited company generally isn't allowed to raise money from the public by selling shares (like public companies can).
They must have:
- no more than 50 non-employee shareholders
- at least one shareholder (also known as a member)
- at least one director.
You can be both a shareholder and a director. You can also be the sole shareholder and director.
When companies are 'limited', the liability of shareholders is limited to any unpaid value (if any) on their shares. This means that shareholders can only be responsible for company losses up to any amount unpaid on their shares.
Visit the Australian Securities & Commissions (ASIC) website to find out more about:
Key facts for companies
- Cost - higher cost to set up and run
- Setting up process - more complicated
- Owner - company shareholders
- Responsibility for business decisions - the director(s)
- Responsibility for losses - generally, the company is responsible
- Report business income - on the company tax return
- Other income - if you're a shareholder and/or director, you pay your individual tax rate on any share dividends and/or your earnings as a director
- Tax rate - the company pays tax on any profits at the company tax rate
- Risk of losing assets - if you're a director, you can be personally liable in some cases for company debts
- Business Tax file number (TFN) needed - yes
- Additional administration - yes, registration with ASIC.
- Additional reporting - yes, annual company tax return and other requirements
- Separate business bank account needed - yes
- Your superannuation - if you're a director, the company is responsible for setting it up.
Learn more about your legal requirements for your company here.