A company is a separate legal entity from its own directors and shareholders and is governed by Commonwealth Law called the Corporations Act 2001. Each company may have its own set of rules which can be laid out in its company constitution; alternatively it can adopt the ‘replaceable rules’ of the Corporations Act 2001.
What are the different types of companies?
There are 2 main types of companies:
- Proprietary (private) company – the most common type in Australia and those often operated by Small Business
- Public company
Why use a company?
One main advantage of using a company is for asset protection. Since a company is a separate legal entity from its owners, it can sue and be sued. There is usually limited liability for the shareholders (unless they have given a personal guarantee).
A company is currently taxed at a flat rate of 30%, meaning the rate of tax is lower than higher income tax rates for individuals – this can be an effective tax planning tool.
The transfer of ownership in a company is easily achieved by selling shares from one party to another, whereas this process can be far more difficult with stamp duty costs involved when structured under a different entity.