When starting or restructuring a business, choosing the right business structure is a decision that carries significant implications. One popular option among many entrepreneurs and business owners in Australia is operating through a company structure. As an accountant, we frequently advise clients on the benefits and responsibilities associated with running a business as a company. Here’s a primer on what you need to know.

1. What is a Company Structure?

  • Separate Legal Entity: A company is a separate legal entity from its owners (shareholders). This means the company can own property, incur debt, sue and be sued in its own right.
  • Limited Liability: One of the key advantages of a company structure is limited liability. Shareholders’ personal assets are generally protected from the company’s liabilities.

2. Setting Up a Company

  • Registration: To start a company, you must register it with the Australian Securities and Investments Commission (ASIC). This involves obtaining an Australian Company Number (ACN).
  • Compliance Requirements: Companies must comply with the Corporations Act 2001, which sets out directors’ duties, reporting requirements, and other regulatory obligations.

3. Tax Implications

  • Company Tax Rate: Companies are taxed at the corporate tax rate, which is different from personal income tax rates. It’s important to understand how this affects your financial planning.
  • Dividends: Shareholders may receive profits in the form of dividends, which are also subject to tax under specific conditions.

4. Director Responsibilities

  • Legal Obligations: Directors have legal obligations to act in the best interests of the company, maintain proper financial records, and ensure compliance with all relevant laws.
  • Personal Liability: While limited liability protects personal assets, directors can be personally liable for the company’s debts in cases of insolvent trading or breaches of director duties.

5. Financial Reporting and Management

  • Record Keeping: Companies must keep accurate financial records, prepare financial statements, and lodge annual reports with ASIC.
  • Audit Requirements: Depending on the size and nature of the business, a company may need to have its financial statements audited.

6. Benefits of a Company Structure

  • Asset Protection: The separation of personal and business assets offers a degree of protection against business risks.
  • Raising Capital: Companies can raise capital more easily than other business structures, through the issue of shares.
  • Credibility: Operating as a company can enhance your business’s credibility and professional image.

7. Considerations Before Choosing a Company Structure

  • Setup and Maintenance Costs: Companies can be more expensive to set up and maintain than other structures.
  • Complexity: The regulatory and compliance requirements of running a company are more complex.

8. Seeking Professional Advice

  • Accountant and Lawyer: Before deciding on a company structure, it’s advisable to consult with an accountant and a lawyer. They can help you understand the financial and legal implications and guide you through the setup process.

Operating your business as a company can offer significant advantages, including limited liability, potential tax benefits, and increased opportunities for capital raising. However, it also comes with stringent legal obligations and compliance requirements. Careful consideration and professional advice are essential to determine if this structure aligns with your business goals and personal circumstances.