Thinking about how to start a company in Australia can initially seem to be an overwhelming task, particularly if this is something new to you. At Bishop Collins we are frequently asked “how do I start a company” and “how much to start a company in Australia” by both new and existing clients. This question is asked for a wide range of reasons. Some of the most common reasons for wanting to start a company include:
- A small business is growing, and the owner wants to transition from a sole trader to a company.
- To start a new business or acquire an existing business.
- A multinational company wants to start operating in Australia
- A trustee for family trust.
- A trustee for a Self-Managed Superannuation Fund (SMSF).
- To be used as an investment vehicle.
Read on to learn more about how to start a company in Australia and the considerations you may need to make.
Should I use the Company Structure for my Business?
There’s a variety of reasons our clients choose to use a company structure, and it depends on each client’s individual circumstances. Some of the key reasons why we advise clients to use a company structure for their business or for their investment vehicle include the following:
Minimise Income Tax
For an operating business in Australia, the corporate tax rate is currently 25%. This is a very favourable tax rate when compared to the top marginal tax rate of 47%. The tax paid is retained in the company as a franking credit. This credit will be attached to future dividends paid by the company. The shareholder will receive a tax rebate for this franking credit on receipt of the dividend.
Asset Protection/Limited Liability
Operating your business as a company allows you to separate the risks associated in running the business from your personal assets. This means if a material risk arises in the business, i.e. litigation, your personal assets, such as your family home, will likely be protected from this risk.
A company has no fixed expiry date when established, unlike a trust. The Corporations Act in Australia allows a company to continue indefinitely until it is wound up.
New Business Partners
A company provides the flexibility to add new partners to your business in whatever proportional allocation is desired. By allotting new shares or selling existing shares, you can easily add new partners to your business to allow your business to grow. Share allotment also provides an excellent opportunity to issue shares to your employees as an incentive to their performance. This can be done under a well-defined employee share scheme.
What Guidance is Available for Running a Company in Australia?
The Corporation Act 2001 is the principal Commonwealth legislation in Australia which regulates operating a company in Australia. It provides guidance on how to create and operate a company in Australia.
The Act is administered by the Australian Securities & Investments Commissions (ASIC). Under the Act, ASIC has significant powers to ensure directors of companies operate in accordance with the law and associated regulations.
If you are starting a company in Australia, you should be familiar with your rights and obligations under the Corporations Act, in particular those relating to directors’ duties. These key responsibilities include:
- Make decisions in good faith and for a proper purpose.
- Do not have a material personal interest in the decision and make it in the best interests of the company.
- Find out and assess how any decision will affect your company’s business performance, especially if it involves a lot of the company’s money or could have a material impact on the company’s reputation.
- Keep informed about your company’s financial position and performance, ensuring your company can pay its debts on time.
- Get trusted professional advice when you need assistance to make an informed decision.
- Make full and frank disclosure about any material personal interests you do have.
Further detailed information regarding your director responsibilities can be found on the ASIC website here. It is very important you understand your obligations under the Act before you become a director. Penalties apply for noncompliance with the law.
How to Start a Company in Australia
You can register your company through the Australian Government’s Business Registration Service here. However, due to the complexities in doing so, most people use a private service provider such as their accountant or solicitor to incorporate their company.
Under recent legislative amendments, all directors now require a Director ID number before they are appointed as a director of a company. A Director ID is a unique identifier that a director will apply for once and keep forever – which will help prevent the use of false or fraudulent director identities. More information about Director IDs can be found on the ASIC website here.
Once your company is incorporated, there are some key ongoing legal obligations you will need to ensure your company complies with. These include:
- Setting up a registered office and principal place of business.
- Keeping the company details up to date with ASIC by lodging the appropriate forms in a timely manner. Fees apply for late lodgment of ASIC forms. Most forms are due for lodgment with 28 Days of the date of change.
- Keeping appropriate financial records.
- Reviewing your annual ASIC statement and pay the annual filing fee.
Further information on these key requirements can be found at the ASIC website.
Taxation and Other Obligations
In addition to the requirements under the Corporations Act as a company director, you will also need to ensure your company meets its obligations under various other Commonwealth and State legislation. These will include:
Tax is administered by the ATO and may include Income Tax, Goods & Services Tax, PAYG withholding, Fringe Benefits Tax.
Obligations in relation to employees include National Employment Standards, Work Health and Safety Act, Superannuation Guarantee, Payroll tax, worker compensation insurance.
Compliance with Other Laws
Depending on the company’s business operations, these may include Anti-money laundering with AUSTRAC, land tax registration, fair trading, privacy laws, franchising code, intellectual property, environmental protections, importing and exporting goods.
Let the Professionals Help you Start your Company
If you’re looking for advice on how to start a company and the requirements involved in doing so, getting professional advice is a smart course of action. The team at Bishop Collins are experts in every aspect of company structure and business establishment and provide solutions to ensure your company is operating legally and profitably.
Please reach out to us at Bishop Collins if you would like to seek professional advice on how to start a Company.
NOTE: Information regarding company incorporation and operations sourced from www.asic.gov.au current at December 2022.