Maybe you operate a company, or are thinking of structuring your business as one. Have you always wondered what the actual benefits of a company structure are? Or been unsure about company tax rates?
Here we give you a rundown of the ‘what’, ‘why’ and ‘how’ of companies.
What is a company?
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.
Why operate your business through a company?
A company offers the following advantages:
- Limited liability
Your personal assets are generally protected if the company is sued or becomes insolvent.
- Raising capital
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.
- Transfer of ownership and control
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.
- Ease of operations
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.
- Succession planning
Companies can easily be passed from generation to generation by the transfer of shares and directorships.
How much tax does a company pay?
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.