Frequently Asked Questions
You need to check the relevant legislation in your State and Territory, as the rules are different in each jurisdiction.
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Can I start a company with just one person?
- Yes. A company can be established with just one person.
- A company needs one director and one shareholder and the same person can fill both of these roles.
- If you find yourself in this situation it may be worth considering whether operating as a sole trader could meet your long term business needs as a more simple business structure however a sole trader can be sued for any assets in his or her own name including your home or car.
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Should a company use a constitution, replaceable rules or a combination?
- This really depends on the type of company that you wish to register.
- Some companies cannot operate using the replaceable rules. This includes:
- no liability companies,
- public companies listed on the Australian Stock Exchange (ASX),
- proprietary companies with a sole director and shareholder arrangement and
- any companies limited by guarantee without 'limited' in their name.
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How does the tax imputation system work with dividends?
- The tax imputation system effectively eliminates double taxation.
- The tax office treats dividends as if they were normal income and groups them together with your other personal earnings to determine your annual income amount.
- However you also receive an 'imputation credit' or 'franking credit’ that applies to the dividend amount.
- This credit represents the tax paid by the company. When it is passed onto you as an investor it lets the tax office know that tax has already been paid on that particular amount.
- This means that if your tax rate is 30% you will not need to pay any tax on the dividend amount because the company has already paid it.
- If your tax rate is higher than the flat 30% rate applied to companies then you will only be taxed the difference between the 30% and your personal marginal amount.
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How do I stop operating as a company?
- Normally, your company comes into operation on the date of registration and continues until it is deregistered.
- You can apply to have your company voluntarily deregistered providing that:
- the company is not carrying on a business,
- its assets are less than $1,000.00,
- all members (shareholders) have consented,
- it is not currently party to any legal proceedings and
- it has paid all fees and penalties required under the Corporations Act 2001 (Cth).
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What documents make up the company's financial records?
- Many different documents can make up the company's financial records.
- Which of these records you are required to maintain will depend on the size of your company and the commercial enterprise you are carrying on.
- Common financial documents can include:
- the general ledger which records transactions, expenses, assets and liabilities,
- cash records including bank statements, cheques and deposit books,
- debtor and sales records,
- wage and superannuation payment records,
- delivery dockets,
- invoices,
- purchase orders,
- tax returns,
- investment records,
- contracts and
- other legal agreements.
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Is a small proprietary company a small business?
- This really depends on the circumstances.
- Small business is defined differently in different contexts and your business might be a small proprietary company for ASIC purposes but not a small business for tax (ATO) purposes.
- For the purpose of regulating companies ASIC defines small proprietary company as those which meet two of the following criteria:
- annual revenue of less than $25 million,
- fewer than 50 employees and
- gross assets of less than $12.5 million.
- However, the ATO defines a small business as having an annual revenue of less than $2 million.
- As a small business owner or the director of a company it is important to be aware of these different definitions and how they affect the level of regulation your business is subject to.
- A company lawyer can help you understand the various classifications that apply to your business. You can look for one near you in our free Find a Lawyer directory.
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What is the difference between my company name and my business name?
- A company is an independent legal entity with its own rights and responsibilities.
- Your company name gives you exclusive rights to that name in Australia.
- A business name is simply a name which a person or entity conducts its business under.
- The most effective way to protect your brand identity when you start a business is by registering a trade mark. A trade mark is legally enforceable and gives you rights to use, sell and license the name. You can find out more from our Legal Guide on Trade Marks.
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What happens when a director is in breach of their duties?
- There is a broad range of consequences which may apply in the event of a breach of duty by a director. These will usually depend on the severity of the breach.
- For example the personal assets of a director may become accessible to creditors in an insolvency or litigation situation where the director has been negligent.
- In some instances directors may also be fined and have damages awarded against them.
- In severe cases directors may face imprisonment.
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What is the difference between an Australian Company Number (ACN) and an Australian Business Number (ABN)?
- An ACN is issued by ASIC for identification of your company when it is trading or undertaking business activities.
- An ACN must be shown on most company documents including invoices, cheques, letterheads, company notices, financial reports and more.
- An ABN is similar and will often contain the same numbers as an ACN. However it may also be held by businesses which are not a company.
- Your ACN or ABN may also be used for identification purposes.
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Can anyone be a director or secretary in my company?
- There are rules governing who can act as a director or secretary of a company.
- Because these company officers have a duty to manage the company for the benefit of the shareholders there are certain standards that must be complied with.
- Generally speaking you cannot be a director if you:
- are an undischarged bankrupt,
- are subject to personal insolvency agreements or
- have been convicted of an offence such as fraud, theft, breach of director duties or insolvent trading.
- Some exceptions may be made if you obtain court consent but this will only be in special circumstances.
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