Companies are more complex to setup and costly to run, however, it affords you many benefits as a business’s owner that does not exist with Sole Traders or Partnerships.
Firstly, a company is recognised as its own legal entity that is taxed at the corporate rate, separate from its managers and shareholders. This means that as a business owner or shareholder you are not liable for all of the company’s obligations like debt or losses. This allows you to do things like taking out loans from a bank without putting your personal assets on the line like you would as a Sole Trader or in a Partnership.
However, having all these freedoms also mean much more paperwork! To set up a company you must understand and comply with the Corporations Act, lodging a separate tax return with the ATO every year and conduct annual reviews amongst many other things. Companies are generally what Sole Traders and Partnerships become when the business grows and its needs for capital increases. Continuing with our previous examples, imagine that the art agency or plumbing service grows, It will likely spend more money to do things like hiring new staff or purchasing new equipment.
Becoming a company will make it easier to borrow money from banks, attract new investors from selling shares as well as transact with suppliers because it is seen as a stable and mature business structure. Not everyone can afford to start a company as you would probably need the help of experts. Key features: Must apply for a tax file number (TFN) and use it when lodging its annual tax return Is entitled to an Australian business number (ABN) if it is registered under the Corporations Act 2001 . A company not registered under the Corporations law may register for an ABN if it is carrying on an enterprise in Australia Must be registered for GST if its annual GST turnover is $75,000 or more Owns the money that the business earns - the individuals who control the business cannot take money out of the business, except as a formal distribution of the profits or wages Must lodge an annual company tax return Usually pays its income tax by instalments through the pay as you go (PAYG) instalments system Pays tax at the company tax rate or lower company tax rate (if a base rate entity) May be eligible for small business concessions Must pay super guarantee contributions (SGC) for any eligible workers. This includes you, if you are a director of the company, and any other company directors.