Companies and the formation thereof are governed by the Corporations Act which in turn is administered by the Australian Securities and Investments Commission or ASIC. To find out more about the Corporations Act see https://www.legislation.gov.au/Details/C2018C00424 or visit the ASIC website at https://asic.gov.au to find out more about what they do or the resources they have.
Setting up your company
Setting up a company in Australia is a relatively simple process, but like many things these days there are always a few tips and tricks that will ensure that your company is set up “right”, working at its very best, and that you avoid one of the many pitfalls that one can encounter. Remember, this is business critical infrastructure that may well end up being the cornerstone of your financial strategies, it’s not the time to be sloppy with the details.
It’s always best to consult with your accountant on how best to set up a company so that it meets your exact requirements.
Tip #1 – Pick your directors with care
OK this is a big one! Put simply the directors are the ones who are exposed to the risks of the company whether they be financial, operational, legal, regulatory or any other, so pick carefully. Consider the risks of the company and the assets held by the directors, or even better make sure you have a proper asset protection strategy and that your choice of director works within it.
It’s worth remembering that at least one of your directors must ordinarily reside in Australia.
You should also consider if any other regulations govern who needs to be a director of your company. For example, if you intending on running a medical practice the Doctor will need to be a director of the company. This will often be encountered in professional situations or where statutory licenses are involved.
General business matters can be a consideration when you are setting up a large business and have a formal board or are going into business with a third party.
Tip # 2 – Do you need A Local Agent or Director
Typically a company registered in Australia must have a local director as mentioned above. If your company is a subsidiary of a foreign company and has no staff in Australia you will still need to comply with this, typically your accountant or lawyer can assist.
If you are a foreign company registered to operate in Australia, you will have directors that reside outside Australia and will need to appoint an ASIC Local Agent. This is a complex process and should only be attended to by your accountant.
Tip # 3 – Who will the shareholders be
OK this is another big one! There are many factors to consider when deciding who should hold shares in a company, namely:
- Asset protection – Is that person or entity at risk? Will the shares be exposed?
- Taxation – Is the company likely to pay dividends? If so how much? Will the shareholder be able to accept them in a tax effective way?
- Regulation – Is there any regulatory reason to hold the shares one way or another e.g. like a professional body or license regulation
Tip # 4 – What if my shareholder is a foreign company
Well this is a complex one! Often this will result in your company being classified as a Foreign Controlled Corporation or FCC. In some circumstances you may be required to have your financial statements audited annually by a Registered Company Auditor and then filed with ASIC. There is a process where you can seek an annual exemption from this by application to ASIC. This is not a DIY process so talk to your accountant.
Tip # 5 – What kind of shares should I issue
If your company is set up with good documents you should have plenty of options with the type of shares you issue. Some common variations include:
- Ordinary Shares – As the name suggests these are basic shares with full rights, they can vote, get notice of and attend meetings and have rights to dividends and a return of capital if the company is wound up.
- Dividend Shares – Typically these shares have rights to dividends but little else
- Preference Shares – Typically have preferred rights to dividends and on occasion fixed income rights
- A – Z Shares – Often documents will create a class of shares for each letter of the alphabet with slightly different rights with respect to notice and attendance of meetings, voting rights, rights to dividends and access to returned capital if the company is closed.
But you get the gist of this, the careful selection of the type of shares you issue and to whom will help you fine tune who controls the company (# of shares and voting right) and who benefits (who has income rights). From a taxation point of view the careful issue of shares in differing classes amongst family members can help fine tune who gets dividends from year to year and how much.
Tip # 6 – What is a registered office and where should it be
The Corporations Act stipulates that all companies must have a Registered Office. This office or address serves as a guaranteed access point for formal communication of a legal nature with your company. In short when something is delivered to your registered office it is considered to have been delivered to you. So it is super important that this is a location that is open during business hours and well managed. This office can be your place of business or home, but unless you want legal documents or the sheriff to turn up there in the event of a dispute, it’s best to have your registered office at your accountants or lawyers office who will attend to such matters for a modest annual fee.
Tip # 7 – Do I need a Company Secretary
Private Companies are not required to have a secretary by law, but you do need to check your company constitution as companies can set their own rules. Public Companies must have a company secretary. As a general guide bigger companies with active boards of directors will have a company secretary to manage the business of the board, the secretary deals with board meetings, governance, corporate secretarial matters and dealings with shareholders and ASIC.
Tip # 8 – Can I just register my Company at ASIC
Yes you can. Follow this link to ASIC for a guide to the process https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/ this is the lowest cost option, however your company will be super basic and set up to be governed by a generic set of rules called “Replaceable Rules”. This will only give you the ability to do very basic configuration and governance. Accordingly, it is recommended that you engage an accountant, lawyer or quality online provider to setup your company, all of who will provide a full Constitution to govern your company along with a comprehensive set of formation documents and corporate secretarial registers you can use for all legal and banking matters. This is well worth the very minor additional cost.
Tip # 9 – What name can I have
First thing to consider is if the name you want is lawful. You can use words, numbers and some special characters. However, some words like bank, trust, Royal and Incorporated are restricted. Similarly implying affiliation to the government or a profession to which you don’t belong is also prohibited.
The next step is to see if the name you want is available, to do this click the following link and follow the prompts https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/company-name-availability/ its also good practice to see if your name may be similar to a pre existing trademark, you can do that here https://www.ipaustralia.gov.au/. Another good idea is checking to see if Domain Name is free should you with to have a website do that here https://afilias.com.au/
If you are ready to go and the name you want is available then move forward and register your company, if you are not quite ready then consider reserving the name you want by following this link https://asic.gov.au/regulatory-resources/forms/forms-folder/410-application-for-reservation-of-a-name/
Tip # 10 – What tax registrations do I need
This is a complex matter, and you should definitely consult your accountant! But some of things you may need include:
- TFN
- ABN
- GST Registration, PAYG Registration
- Payroll Tax
- Land Tax
- Stamp Duty, Import Duties, Gaming Taxes …….. the list goes on
Like I said consult your accountant!
For advice on how to set up a company get in touch with our Concierge team today!