Small business-what is a company

A company is an entity that has a separate legal existence from its owners. The owners of the company are known as members or shareholders. Its legal status gives a company the same rights as a natural person which means that a company can incur debt, sue and be sued.

Companies are managed by company officers who are called directors and company secretaries.

Small business owners often use a type of company structure called a proprietary limited company, which has the words 'Pty Ltd' after the name. This type of company does not sell its shares to the public and has limited liability.

Larger companies that do sell shares to the public can still limit their liability and will often have the abbreviation 'Ltd' after their name.

Why have a company?

There are a number of benefits of using a company structure to operate a business. Having its own legal entity and having a limited status means that the liability of the members or shareholders is limited and generally they will not be personally liable for the debts of the company.

People often incorporate a company to protect their personal assets. It’s important to note that in some cases the owners (shareholders) of companies may still be liable for a company's debts, such as when they have provided personal guarantees to borrow money.

Another benefit of incorporating a company is that income generated by the company attracts a company tax rate, which is currently 30%. This may also be a disadvantage because the company tax rate applies from the first $1 of income generated.

As companies are legal entities in their own right, there are additional and ongoing legal obligations that company officers must comply with under the Corporations Act. Failing to comply with these laws may result in ASIC taking formal regulatory action against the company and/or its officers. 

Registering a company

ASIC is responsible for registering companies. There is an initial registration fee to register a new company. Companies are required to renew their registration every year. We will notify company officers when renewal is due.

More about this topic

Members of a company

Starting a company

Australian company numbers

Are you allowed to operate a business?

Corporate key

Registering a business name

Appointing alternate directors

Minimum officeholders

Shares and the share register

More about small business

Small business home

Starting a small business

Compliance for small business

Closing a small business

Resources

Last updated: 07/11/2013 12:00