Company - advantages and disadvantages
A company is a distinct legal entity separate from its shareholders or officers. Consider this structure if you want limited liability but be aware of strict legal obligations and set up costs.
In Australia, the most common types of company are:
- 'proprietary limited' companies (cannot raise money from the general public through share issues)
- 'public' companies (usually formed to raise or borrow public money by listing the company's shares for trading on a stock exchange).
All companies are governed by the Australian Securities and Investments Commission (ASIC), which administers the Corporations Act 2001 (Commonwealth) and other legislation. Public companies must also comply with the rules of the Australian Stock Exchange.
Advantages of a company include that:
- liability for shareholders is limited
- it's easy to transfer ownership by selling shares to another party
- shareholders (often family members) can be employed by the company
- the company can trade anywhere in Australia
- taxation rates can be more favourable
- you'll have access to a wider capital and skills base.
Disadvantages of a company include that:
- the company can be expensive to establish, maintain and wind up
- the reporting requirements can be complex
- your financial affairs are public
- if directors fail to meet their legal obligations, they may be held personally liable for the company's debts
- profits distributed to shareholders are taxable.