Have you ever wondered how to set up a company? You don’t need to be in business to have heard the term, “Company”. The term is bandied around all the time, and is often considered to be interchangeable with the term “Business”, even though it’s only one type of business.
If you’ve ever wanted to know what exactly a Company really is, or if you’ve considered setting one up yourself, then you won’t want to miss out on this post!
Read on to learn what a company structure is, how to set one up, and discover the ongoing requirements and costs involved.
What is a Company?
So, what exactly is a company? Put simply, a company is an entity that is separate from its owners. This means that, legally, the company is separate from you, as the business owner.
What makes a business a company, is the fact that a company has the same legal status as a person (when it comes to incurring debt, or lawsuits).
Owners of a company are known as members, or shareholders, and you are not directly responsible for the debts of your business (although there are plenty of other responsibilities in running a Company).
If you’re a small business owner, you might be able to use a company structure called, a Proprietary Limited Company (Pty Ltd). Usually, when you have a company like this, you won’t sell any shares to the public, and has limited liability. This is usually different for larger companies.
Whether or not you should set up a company…that’s a whole different topic!
Who Needs One (And Why?)
There are many reasons to start operating as a Company. Before you make the jump, it’s important to consider your personal business structure, and whether it’s appropriate for you. Getting financial advice is very beneficial when making a decision like this, as it allows you to get a more tailored and personalized assessment of your business’s needs, and whether or not you will benefit from it.
That said, there are usually three main reasons for setting up a company:
1. Tax purposes
When you operate as a sole trader, you pay the standard individual tax rates. This isn’t a problem if you’re under the earning threshold (about $117,00 pa), but this can be a problem if you’re earning more than that (as you can end up paying much more in tax).
If your income is considered Personal Services Income, then operating as a company won’t help you avoid this tax rate! However, if you have multiple people delivering work, not just you, or you sell goods instead of services, then this is an excellent reason to set up a Company.
Other tax benefits include things such as travel allowances, research and development tax offset and reduced liability when selling your business.
2. Commercial reasons
If you are looking to grow your business, it can be more challenging if you are operating as a sole trader. For example, you are less likely to be able to take on investors, as a sole trader structure doesn’t offer much security.
Customers might not be as willing to engage with your business, especially if you are supplying to a larger organisation.
If you have big growth plans for your small business, then operating as a sole trader simply won’t cut it in the long run. You won’t easily – if at all , be able to take on investors as they’ll want the security and flexibility of the company structure in place.
Operating as a company also implies a certain level of professionalism and structure, which can also be beneficial in the business world.
3. Legal reasons
As we mentioned before, a company structure is really helpful when it comes to offering you a certain measure of legal protection (as a company acts as its own legal entity).
If you employ people, or worry about having supplier or client issues, then this can be really useful.
Make sure that you read up on the legal and compliance responsibilities that come with a company structure!
How to Set Up a Company
When you set up a company, there are a few things that you need to consider. Aside from the basics (such as choosing a name), you will need to go through the registration process.
When you register your company with the ASIC, you are required to pay a registration fee, as well as an annual review fee.
Steps to set up a Company
- Register a new Company
- Apply for an ABN and TFN
- Register for GST (if over threshold of $75,000), and PAYG Withholding
- If managing your own company, apply for an AUSKey
- Obtain Workers Compensation and any other applicable insurances
For the complete procedure, it’s important to visit the ASIC website, and see how the legislation applies to you and your business.
Ongoing Requirements and Costs
There are a few requirements and costs to consider, right from the start.
These include:
- Annual review ASIC fee
- Bookkeeping, payroll and BAS requirements and costs
- Company tax
- Setup and registration paperwork and costs
- Shareholder agreement
- Superannuation
You are also required to display your company name, where your company conducts business. Any documents that you publish (on behalf of the company), must include the ACN/ABN. You are also responsible for keeping the company details current and up to date.
Summary
In summary… When it comes to setting up a Company, it’s important to consider your personal circumstances, and that of your business. Your employee structure, and the type or business you run (service-based or goods-based), will impact this decision.
You should also consider tax, legislation and commercial benefits.
Ongoing requirements and costs of running a company include: Annual review ASIC fee; bookkeeping, payroll and BAS requirements and costs; company tax; setup and registration paperwork and costs; shareholder agreement and superannuation.
Do you want more information on starting and setting up a Company? Still not sure if it’s a good fit for your business? Contact the team here at Inline Partners, for tailored advice and personalised service.
And while you wait, take a look at our Fact Sheet for more information on resources.
