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If you’ve started a small business or are planning on it, then chances are you might have thought about the legal structure of your business. In Australia, a company is a popular choice for a business structure. There’s a lot of benefits to having a company, no matter what kind of business you’re running.
Although at times, small business owners tend to get intimidated at the thought of setting up a company. After all, there’s a lot of legal regulations and compliance measures to follow. However, setting up a company doesn’t need to be a daunting task! With the right legal expertise by your side, you could be successfully running a company in no time.
Keep reading to know more about incorporating your small business in Australia.
Can A Small Business Be Incorporated?
Yes, a small business can be incorporated. When people think of a company, they tend to imagine big corporations and large buildings. The truth is, a very small percentage of companies in Australia fit that stereotype. Being a company isn’t something that is reserved for large businesses only. A small business can always get incorporated and enjoy the perks of being a company, while maintaining their responsibilities.
You don’t need fancy suits and millions in investment to be the owner of a company. Instead, you just need hard work, dedication and the right legal help (which we’re happy to provide).
Why Should I Incorporate My Small Business?
There are a number of benefits to being incorporated as a small business. As a business owner, you want to be protected while you run your business and be able to manage it effectively. More often than not, opting for a company structure is the best way to have all of this in place.
Some perks of having an incorporated small business include:
- Limited personal liability
- Increased options for legal protection
- Tax benefits
- Ease of selling the business or transferring business assets
- More options to personalise your businesses needs
- Ability to generate capital and investments
- Better protection and security for your business
A company is a legal entity on its own. This means, the company can own property, earn a profit or work up debt and be involved in court matters. All this can be done as a legal person that is separate from you personally.
This isn’t just great for liability concerns however, there are a number of other benefits. For example, you have the option to determine the governance and protection of your company through the right legal instruments. This is always beneficial, as every business is different and so are its needs.
Talking to a legal expert can help you better understand what being incorporated might mean for your specific business. Our legal professionals are happy to discuss this with you, so get in touch for a chat today.
How Do You Incorporate A Small Business?
You can incorporate a small business at pretty much anytime. It doesn’t matter if you’ve already been running your business as a sole trader for a while now or you’re just starting out in the business world.
In order to incorporate your small business, you will need to follow the regulations set out by the Australian Securities and Investments Commission (ASIC). ASIC is the main regulator for companies in Australia, so it’s a good idea to familiarise yourself with them. You’ll need to sort out important details, organise fee payments and a few other things. There’s also a couple of application forms that will need to be filled out. Once it’s all done, dusted and approved, you’ll be the proud owner of a company.
Let’s take a look at the process for incorporating a small business in more detail below.
Incorporating A Small Business: A Step-By-Step Guide
Here’s a breakdown of what you ‘ll need to do when turning your small business into a company.
- Do Your Due Diligence
As excited as you may be to incorporate your small business, it’s important to take a step back and learn everything you can first. This way, you can make the best possible decisions for your venture.
It’s important to understand the different types of companies and what the rights and limitations will be for each one. It’s also wise to get a clear idea on what it’s going to look like running a company, as it’s pretty different from a sole trader business.
It can be difficult to wrap your head around everything. That’s why, we always recommend having a quick chat with a legal expert, that way they can answer any questions you may have.
- Choose The Type Of Company You Want To Run
Once you’ve done your research, you can decide on the type of company you’ll be running. Other than a public or private company, you can also look into having a Dual Company Structure or a B-Corp. It can be tricky to get the set up part right, so enlisting the help of a legal expert is always wise.
- Decide On A Business Name
You will also need to register a business name. ASIC has some guidelines on what is appropriate for a company name- we recommend checking that out before you start workshopping names. You can always look online and see what names are already taken, that way you can avoid disappointment.
Remember, registering a business name doesn’t mean you have complete ownership of it. If you’re interested in legally protecting your business name, then it’s important to look into getting it Trade Marked.
- Decide How Your Company Will Be Governed
Next, you’ll need to think about how your company will be governed. For instance, you might opt to have a Company Constitution or go with the replaceable rules in the Corporations Act.
Often, we get asked if this can be decided once the company has been registered. It might make sense to complete the registration then decide things like company governance however, the process for registering an Australian company requires you to know these things beforehand.
- Sort Out Your Directors And Shareholders
At this stage, it will be time to appoint your company’s directors and shareholders. Ensure your directors are well aware of their duties (it’s not a job that should be taken lightly). You will also need to have sound legal agreements in place with your shareholders. Consider getting important documents taken care of at this stage, such as your Shareholders Agreement. Remember, ASIC requires you to keep a record of shareholder details. Having all the information you need in writing is not only helpful but necessary as well.
- Submit Your ASIC Application And Get An Australian Company Number (ACN)
After getting all the important details sorted, it’s time to complete and submit an application to incorporate your small business. This can be done online through ASIC. This process can be tricky and a little complex which is why many business owners choose to let a legal expert handle the registration part for them. This way, you can be assured everything was done correctly.
Once your application is successful, you will receive an ACN. All Australian companies are required to have an ACN. This is different from an ABN (see below), which is for all business types. An ACN is exclusively for companies. Once you receive your ACN, keep it safe as it will be handy when dealing with compliance or legal matters. You’ll also need your ACN during certain business operations- make sure you don’t misplace it.
- Get An Australian Business Number (ABN)
In addition to an ACN, every business in Australia needs to have an ABN, no matter their legal structure. Your company will need this for certain tax purposes, such as annual filings. Getting an ABN is relatively simple, you just need to go online to the Australian Business Register (ABR) and fill out the relevant details about your business. Once your application is approved, you should receive an email containing your ABN.
- Register For Taxes
Don’t forget to register for taxes as well. For instance, if you predict your annual income will be $75, 000 or more, then you will need to register for GST. There’s a number of other tax types that might apply. Take your time to research what might be relevant to your business and ensure that you’re in compliance with all your tax obligations.
- Keep An Eye Out For Ongoing Obligations
Once your small business has been incorporated, your duties aren’t over. In fact, they’ve only just begun! From here onwards, you’ll need to make sure your business is always operating in line with the relevant standards and you’re maintaining your company obligations, such as annual reporting to ASIC.
Next Steps
Incorporating your business can be a great way to secure legal protection for yourself and your company. However, it’s important to seek the right kind of legal advice along the way. Not all businesses are the same, so while we have provided a general outline in this article, it’s always best to get some specialist advice from a legal professional before going ahead with anything.
To summarise what we’ve discussed:
- Small businesses of every size can be incorporated
- Incorporation offers various benefits, including limited personal liability, legal protection, tax benefits, and more
- A company is a separate legal entity from the owner, allowing it to own property, earn profits, and be involved in legal matters
- Incorporating a small business involves following regulations set by ASIC (Australian Securities and Investments Commission)
- The process for incorporating a small business includes several steps:
- Do thorough research and seek legal advice
- Choose the type of company structure (e.g., public, private, Dual Company Structure, B-Corp)
- Register a business name and consider trademarking it
- Determine how the company will be governed, such as through a Company Constitution
- Appoint directors and shareholders and establish legal agreements
- Submit an ASIC application for incorporation and get an ACN
- Obtain an Australian Business Number (ABN)
- Register for relevant taxes, like GST if your annual income is $75,000 or more
- Be aware of ongoing obligations, including annual reporting to ASIC
- Seeking specialised legal advice is crucial as every business’s needs and circumstances may differ
If you would like a consultation on incorporating your small business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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