LAW REPORT
The Company : an alternative business structure
Ingrid Pagura | BA , LLB
During these uncertain times many small businesses are looking to create as much security as possible and to protect their personal assets . One way of doing so is to trade as a company , rather than as a sole trader .
What is a company ?
A company is defined as an entity created with a view to making a profit . A company is a legal entity with mandated higher set-up and administration costs than are required for sole traders . Companies also have additional reporting requirements .
A company is run by its directors and owned by its shareholders . A company as an entity can provide some asset protection , but its directors can be held liable for their actions .
How is a company created ?
A company is formed by incorporating under the Corporations Act 2001 ( Cth ) which lays down regulations that strictly govern companies . Companies are registered under the Australian Securities and Investment Commission ( ASIC ). When you register your company , you must choose a name .
You must check that it isn ’ t already in use . You will then be granted an Australian Company Number ( ACN ). This is a unique number that identifies your company and must be published on public-facing documents , such as business cards , invoices and websites .
What are the key features of a company ?
• A company is a legal entity in its own right and separate from the people in it . This is the most important differentiation from all other business structures . This is unique to a company .
• A company can own property in its own right and can have limited liability . This means the company has the same rights as a natural person and can incur debt , sue and be sued .
• A company can register for GST and apply for an ABN if its turnover is more than $ 75,000 per year .
• A company must register its business name if it is different to its company name .
• A company must have a registered office within Australia . This registered office must be open to the public each business day and is where all communication is sent . The registered office can be a private home as long as a sign is displayed there and it is open during business hours .
• A company owns the money that the business earns and the individuals who control the business withdraw this money , but not as wages or a formal distribution .
Does a company pay tax ?
A company must lodge an annual tax return and pay tax on earnings . Companies pay company tax , which , unlike personal income tax , is not progressive . There are two rates . The full company tax rate of 30 % applies to all companies that are not eligible for the lower company tax rate . The government introduced the base rate entity from the 2017 – 18 income year and onwards . This entity is a company that has turnover of less than $ 50 million .
156 | vol27 | no3 | JATMS