A company is a legal entity, separate and distinct from the individuals that control the company i.e. its directors and shareholders. A company can acquire property and operate a business, and raises funds by issuing shares.
A company offers the following advantages:
Your personal assets are generally protected if the company is sued or becomes insolvent.
It is very easy for a company to issue additional shares to investors, at any point in the business life cycle. A company can also borrow against its assets.
It is generally easier to sell shares in a company than it is to sell a business or part of a business. This is because the company is the legal owner of its assets and any contracts would usually be in the company name, so do not need to be re-negotiated. Similarly, directors can easily resign and new directors can easily be appointed.
Some businesses prefer dealing with companies to sole traders, as there are potential payroll liabilities that can arise when they engage sole traders. There is also a perceived level of professionalism attached to a company.
Companies can easily be passed from generation to generation by the transfer of shares and directorships.
The current corporate income tax rate in Australia is 30%, or 27.5% if the company is carrying on a small business.
Companies pay a flat rate of tax whether they earn $10 or $10,000,000. This is in contrast to individuals who are taxed at progressive marginal rates and can earn up to $18,200 per year tax free, or trusts who distribute their net income to beneficiaries, who are then taxed at their marginal rates.
Companies can, however, pay franked dividends to their shareholders. Shareholders include the dividend in their taxable income, but receive a credit for the tax already paid by the company.
Find out what structure is most suitable for your business and your situation. Get in touch with the team at BLG Business Advisers online or by calling (02) 4229 2211 today.