So you’ve found yourself wondering what is a company and whether this might be the company structure for you? There are 22,000 Australian companies registered each month, why not join them and limit the liability of your personal assets. Company registration is quick and easy, providing your business with greater legal protection and enhanced recognition in the market.
A company is a separate legal entity. By the law, a company is treated as a distinct person; separate from the persons who formed it. It has the ability to incur debt, sue and be sued. In fact the rights and duties of a company’s are separate from the rights and duties of it directors and shareholders. This means the liability of shareholders are limited as the company is a separate legal entity and the owner’s personal assets cannot be touched to pay for debts of the company, this protection is coined the corporate veil.
Here are the main players in a company that you need to know about:
The owners of the company are known as either members or shareholders. The ownership of shares is a form of property and confers the right to vote, transfer and sue derivatively.
Different classes of shares may have different rights to vote at meetings of members. Unless specified by the company’s constitution, each share denotes one vote, reflected in the percentage owned by shareholders.
Companies are managed by company officers who are called directors and company secretaries. Under law a proprietary company must have at least 1 director and does not require a company secretary.
Company officers must comply with the legal obligations of the Corporations Act. Failure to do so may result in regulatory action by ASIC. To learn more about director’s duties check out our guide.
Types of Company
- Company Limited by Shares: has shareholders whose liability is limited by the value of their shares, this can be a private or public company.
- 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 company 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. The shares are not sold to the public and shareholders have limited liability. 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 company secretary. Public companies can be listed or unlisted, and can raise capital by offering shares on ASX. The owners of public companies have unlimited liability.
For more information on running a company and the legal requirements visit the ASIC webpage.
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