Company

A company is a separate legal entity from its owners (shareholders). It can incur debts, sue, and be sued in its own name. Even though, you are a shareholder and director of a company, the law recognises and view the company as a separate entity. The Corporations Act 2001 governs pretty much everything to do with starting up, running, and closing a company. The directors of a company are charged with the duty of ensuring that the company adheres to the Corporations Act.

Example: Tech Innovators Pty Ltd is a software development company owned by three shareholders. The company has a board of directors who make strategic decisions and receive salary, while the shareholders receive dividends from profits. Tech Innovators Pty Ltd is a separate legal entity, at the end of the financial year at pays tax at 25% fixed rate.

Things to consider..

The operation of a company, and some of the legal consequences of running a company can be very confusing to many people. If set up and run correctly, a company can provide lower tax, asset protection, and many other benefits. However, if run incorrectly, all these benefits can be lost, and add complications to the business operation.

A company is a separate legal entity. This concept is vitally important to the success of a company, as it is the reason why most companies are formed. Basically, it defines a company as a separate thing to any of its members or directors, acting, separate to its members and directors, similar to the company being a human being separate to each and every owner and director. This means that the company's assets, liabilities, and funds belong to the company itself, not to its shareholders or directors.

The directors have legal obligations under the Corporations Act 2001, including acting in good faith, avoiding conflicts of interest, and preventing insolvent trading. The company must comply with ASIC requirements, such as maintaining an up-to-date register, lodging annual reviews, and paying annual fees. A company must not operate while insolvent. The tax obligations include registering for an ABN, TFN, and GST (if applicable), lodging BAS and income tax returns, and keeping financial records for at least five years. Companies must also meet payroll obligations, including PAYG withholding and superannuation payments, and be aware of fringe benefits tax if non-cash benefits are provided. If there are multiple shareholders, having a clear shareholder agreement and considering asset protection and succession planning are also crucial for long-term stability and effective governance.