A company is a distinct legal entity with higher set up and administration costs because of additional reporting requirements.
Companies are regulated by the Australian Securities & Investments Commission (ASIC).
A company is run by its directors and owned by its shareholders. A company provides some asset protection but directors can be legally liable for their actions and, in some cases, the debts of a company.
The main features of a company business structure are:
- A company must apply for a Tax File NumberExternal Link (TFN) and use it when lodging its annual tax return;
- A company registered under the Corporations Act 2001 is entitled to an Australian business number (ABN). A company not registered under the Corporations Act may register for an ABN if it is carrying on an enterprise in Australia;
- A company can register for Goods and Services Tax (GST) if it is carrying on an enterprise. A company must be registered for GST if its annual turnover is $75,000 or more ($150,000 for non-profit organisations);
- The money a business earns belongs to the company, not individuals;
- Companies must lodge an annual company tax return showing income, deductions and income tax liable to pay;
- Companies usually make Pay As You Go (PAYG) instalments, credited against total annual income tax. The amount of tax it is liable to pay is reduced by any PAYG instalments paid during the year;
- There is no tax-free threshold for companies;
- A company pays income tax on its assessable income (profits) at the company tax rate and may be eligible for tax concessions;
- A company may treat income and deductions relating to personal services income (PSI) differently; and
- If the company has any eligible workers, it must pay a minimum of 9.5% of their ordinary time earnings as super guarantee contributions. This includes you, if you are a director of the company, and any other company directors.
Key aspects of a company structure
- Is a separate legal entity.
- Has limited liability compared to other structures.
- Is a more complex business structure to start and run.
- Involves higher set up and running costs than other structures.
- Requires you to understand and comply with all obligations under the Corporations Act 2001.
- Means that business operations are controlled by directors and owned by the shareholders.
- Must be registered for goods and services tax (GST) if the annual GST turnover is $75,000 or more. The registration threshold for non-profit organisations is $150,000.
- Means the money the business earns belongs to the company.
- Requires an annual company tax return to be lodged with the ATO.