There are a number of things to think about before setting up a company.
1. What Kind of Structure?
Before setting up a business you should consider what type of legal structure is best for you.
If you wish to register a company, there are several types of company legal structures. They all involve establishing a new legal entity that is legally responsible for the business. Most companies in Australia are proprietary limited companies. These are companies that do not sell shares to the public.
Some of the advantages of registering a company are:
- if the business runs up any debts or other liabilities, they are limited to the company and the owners are not personally liable for them, and
- the income generated by a company attracts a lower income tax rate than for personal income.
2. Your Company Name
If you decide to establish a company, you will need to choose a company name (or else the company can be known by its Australian Company Number (“ACN”)). You cannot register a company with a name that is already registered to another company or business in Australia. Some words and terms are also restricted, as are words that could mislead people, or which are considered offensive.
You can check if your proposed name has already been registered by using ASIC’s online company name search function. Alternatively, if you’re not yet ready to register the company, you can apply to reserve the name and it will be reserved for up to two months.
3. Registered Office Address
You will also need to have a registered office address. This is where all communications and notices to the company will be sent. It must be within Australia, and if it is not occupied by the company you will need to obtain written consent from the occupier to use it.
4. The Company’s Governance
Upon registration, the company will generally be subject to the rules set out in the Corporations Act 2001 (Cth) that deal with its internal management. These are known as the “replaceable rules”. However, the company can instead establish its own rules, or vary the replaceable rules, by adopting a constitution.
5. Company Officeholders
A proprietary company will need at least one director, who must ordinarily reside in Australia. It does not need to have a secretary but may choose to appoint one. To be appointed as an officeholder, a person needs to have provided written consent.
If the company does not have an Australian resident director available to be appointed you can come to an arrangement with a professional who provides the service on a fee paying basis, or, you could consider asking a lawyer or accountant, or another trusted person, to take on this role.
ASIC requires officeholders to provide their residential addresses, and these will go on the public database. However, you can apply to ASIC for approval to have your usual residential address suppressed and replaced with an alternative address in limited circumstances—for example, where you have “silent enrolment” status on the electoral roll; or where you are not on the electoral roll and placing your address on the public database would risk your own safety, or that of your family.
A company director can appoint someone to act as an 'alternate director' for a set period of time; and the appointment can be terminated at any time. If you do appoint an alternate, you will need to update ASIC about the change in company details.
You will need to consider the share structure of the company, involving the number and class of shares that will be issued, and the amounts paid and unpaid on the shares.
A company must issue at least one share; and most proprietary companies use ordinary shares. You need to obtain written consent from each shareholder to becoming a member of the company. A shareholder must be a legal person, such as an individual or a body corporate. A trust or estate cannot hold shares in their own right—they must nominate a person or body corporate who is a trustee or executor to do so.
If a company issues shares, it must keep a record of those shares in a “share register”. The register must contain certain information about each shareholder. The share register also must show any shares that are not “beneficially held”. A share is beneficially held if the owner will get the direct benefit of the shares. Alternatively, a share will not be beneficially held if it is held by a person or body corporate acting as, for example, a trustee or executor.
Different classes of shares may have different voting rights attached to them. However, each shareholder generally will have one vote for each share held, unless the Constitution provides otherwise.
Shareholders are able to take a dividend payment from the company but only after it has ensured that it is able to pay its debts.
7. Directors’ Duties
If you intend to be a director of the company, you will need to be familiar with a director’s legal obligations under the Corporations Act 2001 (Cth). Among other things, these include:
- acting in good faith, in the best interests of the company
- avoiding personal conflicts of interest, and
- keeping informed about the company’s financial position and performance and ensuring that it can pay its debts on time.
There are penalties for directors who fail to comply with their obligations, including the prospect of a criminal conviction or civil penalty.
8. ASIC Requirements
Officeholders will need to ensure that the company keeps proper records (eg, financial records, deeds, the members register, and minutes of meetings), and that it complies with its regulatory requirements.
Companies are required to notify ASIC of a range of changes when they are made—for example, changing the registered office address, changing an officeholder or his or her residential address, or issuing more shares. Generally, the company will need to notify ASIC within 28 days of a change, to avoid late fees.
Finally, every company has an Annual review date (being the anniversary of its incorporation). ASIC will send the company an Annual Statement, and the company must:
- notify ASIC within 28 days of any changes to the company’s details
- pay the ASIC annual fee, and
- ensure that it has passed a solvency resolution within two months of the review date (if it is in a position to do so).
We hope that this list helps you when considering whether to set up a company, and if so, how to go about it.
If you need any assistance in the process, Patricia Holdings has a range of products and services available—for example, we can register your business name, register your company, act as your registered agent with ASIC, and provide our office as your register a company. Please contact the team if you need any more information.