Most small businesses registered as companies in Australia are proprietary companies limited by shares. Private companies are regulated by the Australian Securities and Investments Commission (ASIC).
While an incorporated company can be more expensive to set up than other business structures, it can be structured so it is legally seen as being quite separate from the owner – a point that can be important should things go wrong. If you’re the owner of a company that is structured so you have limited liability, and your company goes into debt, that debt remains the responsibility of the company, which means your private assets have a level of protection from any creditors.
However there are plenty of instances where company directors will be held accountable for breaches of the law. Knowingly trading while insolvent and certain ATO debts can lead to Directors being held personally responsible.
Becoming a company can also be good for the brand with the marketplace viewing you as a higher status business. Many business people prefer to deal with incorporated companies because of the increased disclosure and regulation they are subject to.
A company is a separate legal entity and has its own income tax liability. A company pays income tax on its assessable income (profits) at the company tax rate, which is currently 30%. There is no tax-free threshold for companies, it will pay tax on the first dollar of profit it earns. Owners, directors, and office holders declare salary, wages, directors fees and dividends received from the company on their personal tax return and pay tax according to the individual tax rates .
A company will require an ABN, TFN, PAYG withholding and possibly GST registration if it is used as a business structure. Workcover registration is required even if the owner of the business is the only employee. Trading names can also be attached to the ABN via a separate registration.