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A company is a complex business structure with higher set-up and reporting costs than those of a sole-trader or partnership. You can form a company as either a private (also known as proprietary) or public entity.  A company is a separate legal entity capable of holding assets in its own name.  The two main participants in a company are the directors and the shareholders. Primarily, the shareholders are the owners of the business and the ones who put the capital into the business.

Benefits of a company

  • Companies offer the advantages of limited liability for the shareholders.
  • The imputation tax system ensures that if the company has paid tax, then the shareholders will get a credit for that tax paid.
  • Contributions made by the company to a superannuation fund on behalf of employees may be claimed by the company as a tax deduction.
  • Companies are entitled to make tax deductible retirement payments to all employed family members.
  • Losses may be transferred from one company in the group to another provided that there is 100% common ownership.
  • The company structure provides an opportunity to employ the principals.
  • Companies offer some ability to “split” income among family members, this can be done by either employing family members of issuing difference classes of shares.
  • Companies offer the ability to obtain CGT deferral where a company is formed to replace existing family structure.
  • The company tax rate, 30%, is much lower than the highest marginal tax rate for individuals, which is 45% plus Medicare.
  • Asset ownership can be transferred in certain circumstances, through a company structure without significant stamp duty costs.
  • Under the Corporations Act 2001 there is greater flexibility in cancelling shares or reducing the paid-up capital of companies, this makes companies a less “rigid” choice of entity.

Tax Requirements

The tax requirements for a company are different to those of other business structures. A company pays income tax on its income (or profits) at the company tax rate. There is no tax-free threshold for companies and tax is paid on every dollar earned.

Legal Requirements

Company officers and directors have legal obligations that specify how they perform their duties and manage the company’s affairs. These obligations are outlined in the Corporations Act 2001.

Author: Graham Robinson Google