Starting a small business company
New ID requirement for directors
Company directors are now required by law to apply for a director identification number (director ID). Find out more at our Director ID information page.
If you want to start and operate a small business using a small proprietary company structure, you will need to choose a company name, set up the right governance structure and register the company. We explain the benefits of starting a company and what you need to do to set it up.
- Definition of a company
- Choosing a company name
- Deciding on company governance
- Setting up company officeholders
- Registering a company
- Setting up a shares register
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. Every company must have at least one member. 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). Unlike a public company, a proprietary limited company does not usually sell its shares to the public to raise capital to operate the business, but 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.
To decide if a company structure best suits your business needs, we recommend that you get professional advice about your circumstances.
Benefits of a company
Here are the benefits of operating a business using a company structure:
- Limited liability - The company is its own legal entity, so the liability of members or owners is limited. Generally, members will not be personally liable for the debts of the company in their capacity as a member. However, members and directors may still be liable for a company’s debts in certain circumstances, such as when they have provided personal guarantees to borrow money.
- Lower tax rate - Income generated by a company attracts a company tax rate. A company tax rate applies from the first dollar of income generated and is lower than the highest marginal tax rate for an individual.
Since companies have a separate legal entity from their owners, there are additional legal obligations that company officers must comply with under the Corporations Act. If they don’t comply with the law and act in the best interest of the company, ASIC may take formal enforcement action against the company and/or its officers.
Your company name must show its legal status (e.g. include ‘Proprietary’ or ‘Pty’ in the name if it’s a proprietary company). It cannot be a name that is already registered to another company or business, and cannot include certain words or phrases.
You may also need to check if your proposed name is similar or identical to any registered or pending trademarks. You can also use the Australian Company Number as your company name.
Registering a business name is not the same as registering a company. It does not create a separate legal entity or provide access to certain privileges that companies have, like the corporate tax rate or limited liability.
Find out more about choosing a company name.
When deciding how the company will be governed internally, you need to decide if it will operate under replaceable rules, its own constitution or a combination of both. Replaceable rules are the basic rules for internally managing a company in the Corporations Act and if you used them the company doesn't need to have its own written constitution.
Proprietary companies with a single member who is also the sole director do not need to have any formal set of rules to govern their internal relationships.
Find out more about corporate governance.
If you’re a director or secretary of a company, you must understand your legal obligations as an ‘officeholder’. It is the officeholders who are ultimately responsible for ensuring the company complies with the law.
Before applying to register a company, you must also get written consent from people who agree to be a director, secretary and/or member. Directors and secretaries must be over 18 years old and directors must have a director identification number (director ID). You must keep this written consent as part of the company’s records once registered.
Proprietary companies must have at least one director (who ordinarily resides in Australia) but do not need to have a secretary. Find out more about company officeholder duties.
To register your company with ASIC you must pay an initial registration fee. To ensure companies retain their registered status, they must pay an annual review fee every year at each anniversary date. ASIC will notify company officers when this is due.
When we register an Australian company, the company can conduct business throughout Australia without needing to register in individual states and territories.
Find out the steps to register your company.
A company with share capital must keep a record of all the shares it issues. This record is called the ‘register of members’ or the ‘share register’. Generally, the register must contain information about the members of the company, any changes to a member’s personal details and/or their holdings, and information about the company’s shares.
Find out more about the shares register.