What Is A Company? (2021 Update)
Find out what a company is and whether this might be the company structure for you.
Could a company be the right business structure for you? 2020 saw 237,994 new companies registered, according to ASIC. Why not join them and limit the liability of your personal assets? Company registration is quick and easy. It provides your business with greater legal protection as well as enhanced recognition in the market.
A company is a separate legal entity. It is a distinct person by law; separate from those who formed it. As a result, it has the ability to incur debt, sue and be sued. In fact, the rights and duties of a corporation are separate from the rights and duties of it directors and shareholders. This means the liability of shareholders is limited as the company is a separate legal entity. The debt of the firm therefore, will not impact personal assets. This is known as the corporate veil. There are also tax benefits for a corporation as opposed to other business structures as business income rises.
Here are the main players in a company that you need to know about:
Members or shareholders are the owners of the company. The ownership of shares is a form of property and gives the right to vote, transfer and sue.
Different classes of shares may have different rights to vote at meetings. Unless specified by the company’s rules, each share denotes one vote, reflected in the percentage owned by shareholders.
Company officers manage companies. These are directors and secretaries. Under law, a private company must have at least 1 director and does not require a secretary.
Company officers must comply with the legal obligations of the Corporations Act. Companies are subject to stricter legal obligations as opposed to other business structures such as partnerships and sole traders. A failure to adhere to these obligations may result in ASIC taking action. For example, these obligations include reporting and tax requirements and directors duties. To learn more about director’s duties check out our guide.
Types of Company
- Limited by Shares. Has shareholders whose liability is limited by the value of their shares. This can be a private or public company.
- Limited by Guarantee. Has members and not shareholders, no share capital and is mainly not for profit.
Private (Pty Ltd) vs Public (Ltd) companies
Small business owners often use a structure known as a private company denoted by proprietary limited ‘Pty Ltd’. ASIC reports that 98.87% of all registered companies are proprietary including small or large companies. These shares have limited liability and are not available to the public. Private companies have a minimum of one shareholder and a maximum of fifty.
Public companies often have ‘Ltd’ after their name. They have a minimum of one shareholder and no maximum. A public company must have at least three directors and at least one secretary. Public companies raise capital by offering shares on the ASX. The owners of public companies have unlimited liability.
For more information on running a corporation and the legal requirements visit the ASIC webpage.
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