A start-up might choose to take the form of a company owned by a single discretionary trust if they value security or if they see the business growing in the future. A company is treated as a separate entity than its founders. This `creates a ‘corporate veil’ between the company and the individuals which protects them from legal consequences if the company suffers debts. Furthermore, the flow of capital derived from a company stays within the business. This allows for simple reinvestment towards company growth. Finally, if the company is owned by a single discretionary trust, it allows individuals to minimize their tax paid through distribution of funds or streaming to family members.
The director is the individual that founded the company and consented to be named director. They are also the first shareholder of the company when shares are issued upon the creation of the company. They are ultimately responsible for the running of the company.
Shareholders are those who own shares in the company. A beginning company, such as a small proprietary company, may wish to have all the shares owned by a single person; often the director. However for asset protection and tax reasons it is usually advisable to have the shares owned by a discretionary trust.
There are a few formal requirements for individuals wanting to start a company. Firstly, the founder needs to establish what kind of company they want to create. The most likely choice for the establishment of new companies is a small proprietary company. This means that the company only needs one director and does not have to hold an annual general meeting of members. Second, the founder must register the company with ASIC and obtain an ACN or Australian Company number. At this time, the founder may also wish to register the business name with ASIC. Once the company has been registered with ASIC, the officers of the company must be appointed such as the director and secretary.
Individuals participating in the business will need to follow laws relating to their business field. For example, an electrician carrying on a business will need to be licensed. It is important that before starting any business, the founders are aware of these stipulations to avoid disputes later.
If the business is being carried on under any name other than that of the full name of its founders, then the name needs to be registered with ASIC. This is a simple and inexpensive process but still required in Australia.
An Australian Tax File Number (TFN) is a personal reference number for taxation purposes. While a TFN is not required for personal use, but the tax fees are substantially higher without one. Furthermore, without a TFN it becomes impossible to obtain an Australian Business Number.
Every business after July 2000 is required to have an Australian Business Number (ABN), which can be attained through the Australian Taxation Office (ATO). Find an ABN Application form here.
If the business has a GST turnover of $75,000 or more a year in income, the they are required to register their business for GST.
Jessica has created a start-up tech company to further research and develop her software, which she believes will revolutionise the solar energy industry. While she is only making a small amount of money at the moment, because of her software’s potential, she expects this income to rise dramatically in the future. Jessica hopes to use this income to grow and further develop her business. Jessica structured her business as a company so that she could reinvest the business’s profits into the business at a later date. In addition, if Jessica’s company does not succeed in the way that she is hoping for, she is protected from any debts the company might incur. Finally, Jessica can also rely on the corporate veil to protect her from litigation if her company is sued.Example 2:
Molly owns a small flower shop. It focuses mainly on gifts and arrangements for intimate events but is largely successful and growing more popular every day. Molly started her business as a company so that she could expand her flower business and open additional stores. The company structure makes it easier for her to do this because other than Molly’s salary, the business’s income remains within the company, making it simpler for her to reinvest. However, Molly is also a cautious person and opening a second store is a relatively risky venture. If her second store fails however, she is protected from any debts that the company might incur.