COMPANY
WHAT IS COMPANY
A company is a legal entity with higher set-up and administration costs. Companies also have additional reporting requirements.
A company is run by its directors and owned by its shareholders.
While a company provides some asset protection, its directors can be legally liable for their actions and, in some cases, the debts of the company.
Companies are regulated by the Australian Securities & Investments Commission (ASIC).
Key features
In this business structure, the company:
- must apply for a tax file number (TFN) and use it when lodging its annual tax return
- is entitled to an Australian business number (ABN) if it is registered under the Corporations Act 2001. A company not registered under the Corporations law may register for an ABN if it is carrying on an enterprise in Australia
- must be registered for GST if its annual GST turnover is $75,000 or more
- owns the money that the business earns - the individuals who control the business cannot take money out of the business, except as a formal distribution of the profits or wages
- must lodge an annual company tax return
- usually pays its income tax by instalments through the pay as you go (PAYG) instalments system
- pays tax at the company tax rate or lower company tax rate (if a base rate entity)
- may be eligible for small business concessions
- must pay super guarantee contributions (SGC) for any eligible workers. This includes you, if you are a director of the company, and any other company directors.
advantages & disadvantages
Advantages of a company include that:
- liability for shareholders is limited
- it's easy to transfer ownership by selling shares to another party
- shareholders (often family members) can be employed by the company
- the company can trade anywhere in Australia
- taxation rates can be more favourable
- you'll have access to a wider capital and skills base.
Disadvantages of a company include that:
- the company can be expensive to establish, maintain and wind up
- the reporting requirements can be complex
- your financial affairs are public
- if directors fail to meet their legal obligations, they may be held personally liable for the company's debts
- profits distributed to shareholders are taxable.
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