A company is a separate legal entity and can incur debt, sue and be sued. The company’s shareholders (the owners) can limit their personal liability and are generally not responsible for company debts.

A company is a complex business structure and has high set-up and reporting costs. You can form a company as either a private (also known as proprietary) or public entity.

A registered company must have at least one director (and a company secretary unless it is a private company). A director is responsible for managing the company’s business activities.

To become a company, an entity must:

  • be incorporated under the Corporations Act 2001
  • be registered with the Australian Securities and Investment Commission (ASIC).

More information on starting a company is available from the ASIC website.

Advantages of a company

  • Limited liability for shareholders.
  • Well understood and accepted structure.
  • Able to raise significant capital.
  • Can carry forward losses indefinitely to offset against future profits.
  • Easy to sell and pass on ownership.
  • Profits can be reinvested in the company or paid to the shareholders as dividends.

Disadvantages of a company

  • Significant set-up and maintenance costs.
  • Do not retain complete control.
  • Complex reporting requirements.
  • Can’t distribute losses to its shareholders.

Other factors to consider

Tax requirements

The tax requirements for a company are different to those of other business structures. A company pays income tax on its income (or profits) at the company tax rate. There is no tax-free threshold for companies and tax is paid on every dollar earned.

Visit the ATO website for more information regarding your tax obligations as a company.

Legal requirements

Company officers and directors have legal obligations that specify how they perform their duties and manage the company’s affairs. These obligations are outlined in the Corporations Act 2001.

For more information read ASIC’s guide for small business directors and your obligations as a small business operator publications.