Guide to Setting Up a Company in Australia

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Are you considering setting up a company in Australia? is it needed for establish your own business, acquire an existing business, or contract through a Pty Ltd company for job opportunities? Maybe your Trust or SMSF also demands a corporate trustee?

Register a company might seem easy—just register on ASIC’s website. But there’s more to it. Some important steps are often missed, such as getting written consents from officeholders and making a company constitution. Just having a company certificate isn’t sufficient. If you lack the correct documents and don’t organize and store them with the company register, you could violate the Corporations Act 2001 (Cth).

This guide breaks down the steps for setting up a Company in Australia. We’ll use a real case—Sarah’s journey—to illustrate each stage. Let’s begin.

Meet Sarah and Her Family: A Coffee Lover’s Journey

Meet Sarah, a passionate coffee lover in Australia. Married to Peter with two kids, she owns her home and two investment properties. But Sarah envisions more—a cozy coffee spot named “Aroma Haven Café,” a place for fellow coffee enthusiasts.

Sarah has a chance to buy an existing coffee shop, “Aroma Haven Café.” But she’s uncertain about the best business structure. She wants to protect their assets – three properties – and avoid risking everything if the café doesn’t succeed. She’s looking for a smart setup that offers asset protection, good tax outcomes, and flexibility for growth. Making the right choice now is crucial to prevent expensive corrections in the future.

That’s where we come in. Sarah’s turned to us for expert guidance. She knows she needs a plan that protects her existing assets while allowing her café dream to flourish. As advisors, our job is to listen closely, ask the right questions, and understand her vision. By focusing on her priorities, we can guide her towards a clear and secure path. Let’s join Sarah’s journey and find out how she achieves her dream the smart way.

Sarah’s Goals and Concerns

Control: Sarah aims to lead her coffee shop, fulfilling her unique vision.
Asset Protection: With three properties, Sarah is eager to protect her assets as she structures “Aroma Haven Café”
Tax Efficiency: Sarah works to maximize her café’s earnings by using smart tax strategies.
Growth: Beyond a single café, Sarah imagines expanding her coffee business to multiple locations.
Exit Flexibility: While committed, Sarah wants the freedom to sell her café or explore new ventures.

By understanding Sarah’s aims, we’ll explore suitable Australian business structures, ensuring the enduring success of “Aroma Haven Café.”

Sarah’s Priorities:

When asked to put her concerns in order, Sarah was clear about her ranking:

Protecting family assets
Minimizing income tax
Simplifying administration

Our Recommendation:

Considering Sarah’s goals, we recommend setting up an Australian company. This structure meets her needs.

The chart visualizes the organizational structure of Aroma Haven Café. At the top level is 'Aroma Haven Café Pty Ltd', which is overseen by 'Sarah & Peter Pty Ltd' acting as the trustee and shareholder. The ultimate beneficiaries are under 'S&P Family Trust'.

TMS recommends setting up a company in Australia, highlighting benefits such as stronger asset protection and more favorable tax advantages compared to being a sole trader.

Why a Company in Australia and Not a Sole Trader?

Asset Protection: Especially a proprietary limited company in Australia establishes a separate legal entity, ensuring a distinct division between Sarah’s personal assets and those of the company. This protection shields her family’s assets if “Aroma Haven Café” encounters financial challenges. In contrast, sole traders face unlimited personal liability for their business debts and obligations.
Tax Advantages: Companies have fixed corporate tax rates, advantageous as earnings increase. Corporate tax rates are currently 30%, or 25% for small and medium companies, sole traders are subject to their personal marginal tax rate, which might surpass the corporate tax rate.
Admin Ease: While initial setup might seem complex, ongoing administration with the right systems is streamlined.
Growth Potential: Companies are attractive to investors, offering clarity in equity distribution. Company can attract investment by offering shares to third parties, regulated under the Corporations Act. On the other hand, sole traders seeking additional capital must rely on lenders, join partnerships, or restructure their business.
Exit Flexibility: Selling or transitioning a company is simpler than for a sole trader.

In comparison, choosing a company structure offers significant advantages in terms of asset protection and tax benefits, making it a preferable option over being a sole trader.

Chart comparing the benefits of forming a company vs. being a sole trader in Australia across five categories: Asset Protection, Tax Advantages, Admin Ease, Growth Potential, and Exit Flexibility. Companies generally offer stronger asset protection, more favorable tax rates, streamlined admin, easier access to investment, and more flexibility in exiting the business.

What is a Company in Australia?

An Australian company is a unique legal entity formed and governed by the Corporations Act. Think of it this way: Sarah, who dreamed of opening “Aroma Haven Café,” created a secure boundary around her café. Everything happening within this boundary – business operations, financial deals, and all events – remains contained. This boundary concept is what defines a company. It’s a distinct zone that separates Sarah’s business affairs from her personal life.

This legal status enables companies, like Sarah’s “Aroma Haven Café,” to conduct various activities such as making contracts, owning and selling assets, and engaging in business operations. They even have the capacity to initiate or face lawsuits, all under the company’s name instead of Sarah’s personal name. This arrangement protects her personal assets, like her home, from potential business-related risks.

When Sarah’s café is registered as a company, it receives a unique company name recognized by the Australian Securities and Investments Commission (ASIC). After registration, the company obtains an Australian Company Number (ACN), which is like an address specifically tailored to the café.

In the company’s ongoing operations, even though directors and shareholders may change, at least one director must always be present. This consistent presence ensures the company’s stability. This director, identified through a Director Identification Number (DIN), shoulders the company’s legal responsibilities.

Digging deeper, the most common type of company in Australia is the proprietary limited company, often abbreviated as ‘Pty Ltd company.’ Think of it as an exclusive café where Sarah invites a chosen group of shareholders. These shareholders contribute share capital, similar to the funds she uses for coffee beans and furniture. Decisions about these resources are collectively made by Sarah and the shareholders.

However, there’s a limit. Just as there’s a maximum capacity for Sarah’s café, a proprietary company with shares is capped at 50 members. If this number is exceeded, the business structure must transition from a private company to a public company with shares.

How Do I Begin the Company Registration Process in Australia?

Setting up a company in Australia, under the Corporations Act, requires understanding the right business structure and legal obligations. Here’s a step-by-step guide for you:

Step 1 Propose a Company Name:

Pick a proposed company name distinct from current Australian company names.
Use the National Names Index on the ASIC website to ensure the name isn’t taken.
For example, if Sarah suggests “Aroma Haven Café”, we’ll verify its availability. If unavailable, Sarah needs to propose a different company name.

Step 2. Decide on the Officers, Members, and Location of the Company:

Director

Basic Requirements for Directors when Registering a Company:

At least one director is required for every company.

One director should typically be an Australian resident.

Directors must be 18 years old or above.

Directors must provide written consent for their role.

Director Responsibilities under the Corporations Act:

Acting with honesty and transparency in all company matters.
Prioritizing the company’s best interests over personal gains.
Responsible handling of company information and records.
Avoiding situations where personal interests conflict with the company’s goals.
Making well-considered decisions to safeguard the company’s legal standing.
Ensuring the financial health of the company to prevent personal liability.

Consequences of Failing Directorial Obligations:

Directors can be held personally liable, potentially facing fines or imprisonment.
Monetary penalties, which might extend up to $200,000, can also be imposed.

For Sarah, establishing a coffee shop company means taking on the director’s role, which goes beyond coffee beans and interiors. She must maintain integrity, honesty, prioritize the company, and manage finances to avoid legal consequences.

Shareholder:

Shareholders own parts of the company, with rights based on their shares. They can be individuals, other companies, trusts, or groups. They can vote, get dividends, and influence director choices.

Sarah’s Recommended Structure:

For Sarah’s situation, we advise the establishment of a trustee company that will act as a trustee for their Family Trust. This trustee company will then hold the shares of Sarah’s trading company. By doing so, it provides an added layer of legal and financial separation, which can be beneficial for asset protection and potential tax advantages. This setup aligns with the provision that, while a trust itself cannot be a direct shareholder due to its non-legal entity status, its trustee can hold shares on the trust’s behalf. This way, the Family Trust indirectly becomes a shareholder of Sarah’s trading company through the trustee company.

Company Secretary:

A Company Secretary ensures corporate compliance, managing records and legal status. In smaller companies, the director might take this role, as seen with Sarah overseeing her coffee shop.

Though not mandatory, having a secretary is useful for sole directors like Sarah. Secretaries must be at least 18 years old and provide written consent.

In cases like Sarah’s, where there’s only one secretary, they must reside in Australia. If there are multiple secretaries, one must be an Australian resident.

Duties include informing ASIC about company detail changes and maintaining honesty, diligence, and confidentiality.

Failure to comply can lead to fines and up to 5 years of imprisonment.

Public Officer:

The Public Officer serves as the Australian Taxation Office (ATO) representative for a company, guaranteeing compliance with tax regulations. This role is pivotal during company registration, involving signing tax returns, Business Activity Statements, and overseeing tax-related matters.

The Public Officer is like the manager of the company’s tax stuff. They keep really good track of the company’s money records, which helps the accountant make the yearly financial reports and tax forms. Basically, the Public Officer helps make sure all the tax things go smoothly with the tax office.

Appointment Requirements

Every Australian company must appoint a Public Officer.
Only one Public Officer is allowed per company.
The Public Officer needs an Australian residential address.
Minimum age requirement is 18 years.

The officer must be appointed within three months of the company’s start of operations or income generation. Post-registration, they communicate with the tax office.

Non-Compliance Consequences

If the company doesn’t appoint a Public Officer, they can get fined every day. The Public Officer has a big responsibility to make sure the company follows the tax rules. If they don’t do a good job, both the company and the Public Officer can get into trouble.

Example: Sarah’s Role

Sarah is the Public Officer for her company. She’s in charge of signing BAS, tax returns, and ATO-related documents.

Registered Office Address:

Your registered office address is where official company communications are received. It’s crucial to keep this address up to date in your company’s records. Beyond being a mere business name location, it’s the hub for your company’s official documents. For many, this might be their accountant’s location, ensuring accessibility during specific hours. While considering options like using your home address, remember that it affects public visibility. To ensure both privacy and efficient correspondence management, we recommend utilizing your business location or your accountant’s address. This choice plays a significant role in your company’s path to success.

In Sarah’s situation, we’ve suggested using our address as her registered office. This way, we can handle all regular correspondence for her Company efficiently.

Principal Place of Business:

Represents the core location where the company conducts business. This is distinct from the registered office address.
It signifies where primary business decisions are made and where most operations, financial records, and transactions take place.

Taking into account Sarah’s situation and the key elements of setting up a company in Australia, we’ve determined the structure for her venture, “Aroma Haven Café Pty Ltd.” The roles established include:

Director & Secretary: Sarah
Shareholder: Sarah Trustee Company ATF the Family Trust
Public Officer: Sarah
Registered Office: Accountant’s business address
Place of Business: Sarah’s shop address

It’s important to note that while these roles are vital, the process of setting up a company is not complete; this phase entails crucial preparation steps.

Step 3.Creating the Company Constitution

Starting a company in Australia requires a strong foundation. One key pillar of this foundation is the company constitution. Think of it as the rulebook for your company, laying down all the guidelines and procedures that govern its operation.

Every company in Australia, be it private, proprietary limited, or public, has options:

Follow Replaceable Rules – These are standard rules set by the Corporations Act.
Draft Their Own Constitution – A tailor-made set of rules unique to the company.
Blend of Both – Combine both replaceable rules and their own guidelines.

Why is the company constitution so important?

It provides clarity on how the company operates, detailing roles and responsibilities.
It’s flexible and unique to your company. Unlike replaceable rules, which need new laws to change, you can modify your constitution to suit evolving needs.
The Australian Securities and Investment Commission (ASIC) mandates certain companies to have a constitution.

Example of Company constitution, written in plain English, includes:

Purpose: The company’s mission and reason for existing.
Shares: The ins and outs of different share types.
Transfer of Shares: Guidelines on share movement.
Directors: Selection, roles, and pay.
Powers of Directors: What they can and can’t do.
Documents & Records: Managing paperwork.
Dividends & Reserves: Handling profits and savings.
… and many more, summing up to 90 clear rules.

It’s a comprehensive constitution suitable for running businesses. However, if you’re thinking of using your company as a trustee for an SMSF, this constitution might not be the right fit. For that purpose, consider other options like the SMSF Special Purpose Corporate Trustee.

Remember, when you’re laying the foundation for your company, having a clear, easy-to-understand constitution is vital. It ensures that everyone involved knows their role and how the company operates.

Step 4: Obtain You Director Identification Number (DIN)

Before setting up a company in Australia, every director is required by the Corporations Act to get a Director Identification Number (DIN). This unique number becomes an important part of the company’s records, ensuring transparency and reducing fake director identities.

Starting 5 April 2022, getting a DIN is needed before you can register a company. Not following this rule can lead to legal problems, as outlined by the Australian Securities and Investments Commission (ASIC). Get your DIN online through the Australian Business Registry Services (ABRS) for quickness. This step highlights the legal duties and responsibilities in the company structure, essential for keeping a strong business structure in Australia.

Step 5. Company Registration with ASIC

Preparation is Key: Before you register the company with ASIC, you need the following:

1.Your Chosen Company Name: It should be unique and represent your business well.

Registration Location: Which State or Territory will your company register? Is it NSW?
Physical Addresses: Secure both your registered office and principal business addresses. Remember, no P.O Boxes allowed.
Officeholders’ Details: For each director, public officer, and secretary, collate:
- Their complete full name, home address, date and place of birth, and director ID.
- Specifics of each officeholder’s share: type, quantity, and rate per share.
Shareholder Info: If there are shareholders who aren’t officeholders, provide their name, ACN/ABN (if it’s a company), address, and share particulars.

2. Get consent from officeholders, members and Registered Office

Ensure you have written consent from individuals taking on these roles:
- Director (above 18 years old)
- Secretary (also above 18)
- Member (your company needs at least one).
- Remember, for a proprietary company, at least one director and secretary should live in Australia.
Registered Office Consent: If your registered office isn’t the company’s property (say, your accountant’s place), obtain their written approval to use the address.

3. Organize Company Records: Your company’s paper trail is essential. Ensure you have:

Company Constitution
Resolutions of members and directors upon incorporation
Registers for directors, secretaries, and members
Consents from officeholders and members
A letter designating a public officer to the ATO
Share allotment journal
Share certificates

4. Go Online: With everything in place, you’re set to register your company online

5. Stay Compliant: Just having an ASIC Certificate of Registration isn’t enough. According to the Corporations Act 2001 (Cth), your company must maintain specific records, including:

Officeholder consent forms
Company Constitution
Applications for shares
Minutes of meetings of Directors
Share Certificates
Members Register
Occupiers consent to use the registered office (if the company is not the occupier)
And more, based on your business structure.

If you only have an ASIC Certificate of Registration and lack the above essential documents, your company might not be in compliance with Corporation Law. TMS Financial can help you obtain these crucial documents, ensuring your company is properly set up and aligned with legal requirements.

Starting Right Matters: Setting up a company in Australia is the foundation of your business journey. A small oversight now can become a costly problem later, both in terms of fixing it and potential penalties. It’s not just about paperwork; it’s about creating a solid base for your future growth. Mistakes at the start can hold you back and eat into your profits. For the sake of your business’s future, it’s crucial to get the setup right. Consider seeking expert guidance – it’s an investment in getting things right from the start.

Step 6: Applying for TFN, ABN, and GST

After successfully registering your company and obtaining the necessary documents, you need to take the next crucial steps to ensure your business is fully prepared for operation. One of the most important aspects is to apply for the Tax File Number (TFN), Australian Business Number (ABN), and Goods and Services Tax (GST) registrations. These registrations are essential for complying with taxation and regulatory requirements.

Once you’ve successfully obtained your TFN, ABN, and GST registrations, your company will be better equipped to engage in business activities and manage its financial responsibilities.

It’s recommended to consult with a legal or financial professional during this process to ensure that you’re fulfilling all the necessary obligations and making informed decisions for your company’s tax and regulatory matters.

Step 7: Open a Bank Account for Your Company

After successfully registering your company and obtaining the necessary registrations, it’s essential to open a bank account for your company. A dedicated business bank account helps keep your company’s finances separate from personal finances, enabling better financial management.

Opening a business bank account is a critical step in maintaining your company’s financial integrity and ensuring smooth financial operations. Having a separate bank account simplifies tracking income and expenses, making tax reporting and financial management more efficient.

Setting Up a Company in Australia: A Comprehensive Guide