A corporation or a company is commonly used as a trading entity and is governed by the Corporations Act 2001 (Cth). The Australian Securities and Investment Commission (ASIC) enforces the Corporations Act. There are different types of companies but most commonly known companies are public companies and proprietary companies.
Public Companies
Public companies, some of which are also listed on the Australian Stock Exchange (ASX) (see also ASX Listings), have more than 50 shareholders (members). A public company must have at least 3 directors, 2 of whom are normally resident in Australia and have a company secretary. Directors are appointed at a general meeting and sometimes at an earlier time to be later on confirmed at the general meeting. There are certain restrictions and qualifications to appointment as a director of a public company. The public company is generally managed by a board of directors.
Proprietary (Private) Companies
Most small to medium enterprises (SMEs) operate as proprietary companies. You can have up to 50 shareholders of a proprietary company and have a sole director who is normally Australian resident. There is no requirement to have a company secretary. If there is more than one director, each director does not have to be appointed by a separate resolution. The powers of appointment and removal of directors are stated in the company's constitution and there is no statutory right of shareholders to remove them. There is also no requirement to have a company auditor and a proprietary company does not need to hold annual general meetings.
Advantages of a company
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you need only one shareholder and can have unlimited shareholders for a public company and up to 50 shareholders for a proprietary company
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liability of individual shareholder is limited to the amount of unpaid shares
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as opposed to sole trader or partnership, the business risk is spread to a lot more people
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ownership of assets lies with the company and not individual shareholders
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a company can issue shares to raise capital
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a company can sue or be sued in its name rather than in the names of the shareholders
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a company can continue in existence notwithstanding death or bankruptcy of a shareholder
Incorporating a company
You are able to purchase a "shelf" company, which is already registered but is inactive and use the same name or change its name. Alternatively you may instruct your solicitor to register a company with your preferred name. The company comes into existence once it is registered by ASIC. A unique 9 digit number is allocated to the company called the Australian Company Number (ACN).
A company must have a constitution which sets out rules for internal management of the company. Basic rules are contained in the Corporations Act which can be adopted by the company. Some of the rules are mandatory whilst other rules in respect of internal management are replaceable.
The registered office of the company must be in Australia and ASIC must be kept informed of the address of the registered office. If the principal place of business of the company is different from the registered office, ASIC must be informed of this as well.
A company must keep a register at either its registered office or principal place of business which contain things such as a copy of its constitution, details of officer holders and minutes of meetings of office holders. A company must also keep a register of shareholders and also a register of charges.
You should consult your solicitor before incorporating a company to advise you whether it is an appropriate vehicle for your business, who should be the shareholders and officeholders of the company and their responsibilities.
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