In Australia a company is a separate legal entity that is registered with the Australian Securities and Investments Commission (ASIC). Companies are regulated under the Corporations Act 2001.
The advantages of operating a business through a company include:
- 30% tax rate (or 28.5% for companies with a turnover less than $2,000,000 pa).
- Limited liability – this ensures the shareholder’s liability is limited to the capital invested in the company.
- Ability for investors to pool their investment funds together.
The main disadvantage of operating through a company is that it doesn’t receive the 50% general capital gain discount like individuals. In addition, the extra compliance and regulatory costs and directors’ legal obligations and duties need to be considered.
Before starting a company, the following steps must be undertaken:
- Firstly, decide if the company structure is right for you.
- Choose a company name.
- Decide how to operate the company. This involves deciding if the company will operate under replaceable rules, its own constitution, or a combination of both.
- Understand directors’ legal obligations.
- Register the company with ASIC.