By Alex Papafotiou, Special Counsel.
For entrepreneurs in Australia, incorporating a company is a crucial first step.
This detailed guide aims to demystify the process as outlined in the Corporations Act 2001 (Cth), focusing on the roles of directors, shareholders, and secretaries, and the significance of a company constitution.
Understanding the legalities and the roles of key figures is essential when incorporating a company in Australia. This process not only ensures compliance with legal standards but also sets a strong foundation for your business’s future.
What can a Company Do?
Companies can do most things a real person can as a company is considered a legal person. This includes, signing contracts, carrying on a business, managing a trust, receiving income for tax purposes, buying real estate, sue others and be sued.
Determining what your company will be used for is step 1.
Choosing a Company Name
The journey begins with choosing a suitable and unique company name. It’s vital to ensure this name is available and meets the legal criteria, which can be done through the ASIC. Some words are restricted or not available, check the full list here.
Deciding on the Company Type
In Australia, businesses have several options for company structures, including proprietary limited companies, public companies, and not-for-profit organisations. Each structure carries different legal and financial responsibilities.
Most companies are proprietary companies limited by shares and have “Pty Ltd” in their name.
Determining the Company Structure
Key to setting up your company is appointing the right people:
The Role of Directors
Directors manage the company’s affairs and are responsible for ensuring legal compliance. They must be over 18 and at least one should usually reside in Australia.
The Role of Shareholders
Shareholders are the owners of the company. Their liability is generally limited to their share of investment, and they have a say in significant decisions.
The Role of a Company Secretary
Though not mandatory for private companies, a company secretary is vital for public companies. This role involves managing the company’s administrative and compliance obligations.
Creating a Constitution or Adopting Replaceable Rules
A crucial element in incorporation is deciding on governance through a constitution or replaceable rules.
A company constitution details the governance and operational rules of the company. While some opt for the standard ‘replaceable rules’ in the Corporations Act, a customised constitution can be more suitable. This allows the company to tailor its governance, reflecting unique management structures and shareholder agreements. Particularly for companies with several shareholders or complex structures, a customised constitution provides clear guidelines on decision-making, dispute resolution, and the roles and powers of directors and shareholders.
If there is no constitution, the replaceable rules in the Corporations Act 2001 are used instead. This does not apply for some company types. There are no replaceable rules for shareholders agreements though.
Before registration, written consents from the proposed directors, secretaries, and members are necessary, confirming their understanding of their roles and duties. This step is often missed when people setup their companies online without using a lawyer or accountant.
Registering with ASIC
The Australian Securities & Investments Commission (ASIC) oversees company registration, issuing an Australian Company Number (ACN) upon successful registration.
Applying for an ABN and Tax Registrations
After registration, obtaining an Australian Business Number (ABN) and GST registration, if needed, is essential. Note that no tax registrations are mandatory and it depends on what the company will be doing. Most companies obtain a TFN at a minimum, and often an ABN also.
Setting Up a Registered Office
Every company in Australia must have a registered physical address for official correspondence. It cannot be a PO Box.
Issuing Shares to Shareholders
Formalising the ownership structure by issuing shares to shareholders is a key part of the incorporation process. It is highly recommended that advice is obtained on who should hold shares and ensure that shares are issued correctly, such as reflecting whether a shareholder holds share on trust for another party.
Maintaining Company Records
Keeping accurate financial records and documentation of corporate meetings is vital for legal compliance.
Understanding Ongoing Compliance
Ongoing responsibilities include annual reviews and updating ASIC with any changes in company details. There is an annual ASIC fee also.
Incorporating a company in Australia involves understanding various roles and legal obligations, including the creation of a tailored company constitution. While this guide provides a thorough overview, the complexities of company incorporation often require professional assistance. Cadena Legal, with its expertise in Australian commercial law, offers invaluable support throughout this process.
Our team can assist with customising company constitutions, ensuring legal compliance, and providing strategic advice. Partnering with Cadena Legal ensures a smooth and confident journey in setting up your company in Australia.
Disclaimer: This material is produced by Cadena Legal, a NSW-registered legal practice. It is intended to provide general information and opinions on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Contact us here for advice.