When starting a business, one of the most important decisions you must make is deciding its structure. The choice of structure not only influences the tax effectiveness, but also Risk aspect and other operational matters.

There are a number of business structures you can choose from, with the most common being a Company.

What is a Company Structure?

Company/Corporation is derived from Latin word ‘Corporatio’ which means ‘Assumption of a body’. It is a legal entity that is seperate from its shareholders or its office holders.

A company business structure is a separate legal entity, unlike a sole trader or a partnership structure. This means the company has the same rights as a natural person and can incur debt, sue and be sued. As a member you’re not liable (in your capacity as a member) for the company’s debts. Your only financial obligation is to pay the company any amount unpaid on your shares if you are called on to do so. However, directors of the company may be held personally liable if found to be in breach of their legal obligations. For more information on Director obligations, please refer to ASIC.

The two types of companies are proprietary limited’ companies (cannot raise money from the general public through share issues) and ‘public’ companies (usually formed to raise or borrow public money by listing the company’s shares for trading on a stock exchange).

All Companies are administered by ASIC with public companies must also comply with Australian stock exchange.

Advantages of a Company

  • Company tax rates are usually less than other types.
  • Legal arrangements are in the company’s name, rather than its directors.
  • The business continues despite death of key shareholders.
  • Limited shareholder liability.

Disadvantages of a Company

  • Profits distributed to share holders are taxable.
  • Financial affairs are public.
  • Expensive to maintain and establish.
  • The statutory requirements for reporting and filing can be complex.

Please contact us if you have any questions or read our blog on other Business structures.