How to set up a company in Australia
The following steps outline how to set up a company. This can be complicated, and you should seek advice from an accountant who will explain the intricacies and help you decide what is best for you.
1. Decide on a name for the Company
The company name can be anything you want, however it can’t be the same or similar to another registered company or business name. There is a Name Availability tool on ASIC’s website which you can use to check for availability. If it is similar to another company name or business name, it may require manual processing with ASIC upon submitting the relevant forms. The company name must include the liability of its members at the end of the name which means appending ‘Pty Ltd’ in most cases. For further information on company names, you can visit ASIC’s website.
2. Decide on the Officers, Members and Location of the Company
There are a few different roles which are required to be filled within a company as per the Corporations Act 2001. The roles most people would be familiar with are directors and shareholders so let’s start there. To put it simply, directors are responsible for running the company and shareholders are the legal owners of the company. Directors can also be shareholders of the company and vice versa.
The other two roles which aren’t as well known are the company secretary and the public officer. These are statutory roles and simply speaking, the secretary is responsible for ensuring proper governance and corporate compliance of the company and the public office is the representative of the company to the Australia Tax Office.
Finally, you will need to decide on where the company is going to be located. There are to locations you will need to specify. The first is a Registered Office, which is the statutory address for the company where all documentation and communication related to the company is sent. It is also where notices for the company will be served and is required to be open during office hours. This is most commonly your Tax Agent. The second is the principal place of business which is reasonably self-explanatory, however is the place where decisions are made, and the books of the company are maintained.
Further explanations of these concepts can be found below in the Company Definitions section.
3. Draft Company Constitution
Once you have all the key stakeholders of the business worked out, the next step is to draft a company constitution. This can be done by a solicitor who specialises in corporate law.
Many accountants do provide a service to be able to set up companies however they do not draft the constitution themselves, instead outsource it to a legal document provider (i.e. use a legal template).
4. Lodge ASIC Form 201
As companies in Australia are regulated by ASIC, to be able to establish a company, you need to lodge a Form 201 with them. This can be done yourself using the Business Registration Service, which is a tool provided by the government, however we recommend doing this through an accountant to ensure it is done correctly. Once you lodge a form with ASIC, it can be time consuming and costly to make any changes.
5 .Apply for Director Identification Number
Directors of Australian companies are now required to apply for a Director Identification number. A director ID is a unique identifier that will be kept indefinitely and applied across companies. You will need to apply for your Director ID yourself.
From now until 5 April 2022, you will have 28 days to obtain your director ID after a company has been established. After 5 April 2022, you will need to obtain this before your company can be set up. If you do not obtain your Director ID within this timeframe, ASIC will impose hefty penalties and fines.
The fastest way to receive your director ID is to apply online through the Australian Business Registry Services (ABRS). How to apply online
To complete your online application, you will need:
- A standard or strong identity strength myGovID. If you don’t have one, please visit How to Set up myGov ID.
- An individual Australian tax file number (TFN). Providing your TFN is optional but it will speed up the process.
- Your residential address, as recorded by the Australian Taxation Office (ATO).
- Answers to two questions based on details we know about you from the following documents:
– Bank Account Details
– Notice of Assessment
– Dividend Statement
– Centrelink Payment Summary
– PAYG Payment Summary
There are also options to apply for a Director ID application via phone and paper – Application Options.
6. Apply for the ABN and TFN
Once the company has been set up, ASIC will issue an Australian Company Number (ACN). If you plan on carrying on a business in the company, you will need to apply for an Australian Business Number (ABN) as well as a Tax File Number (TFN).
These applications are completed online via the Australian Business Register (ABR) and typically completed by an accountant. If all correct details of the officers and shareholders are provided, the ABN should be issued instantly with the TFN shortly after.
It can however take up to 28 days for the ABR to issue the ABN for a company if they need to undertake any manual checks of the details provided as part of the registration.
7. Open a company bank account
Now that the company is setup and it has all of its registrations, you can now setup a bank account. The name of the bank account should be in the name of the company (e.g. Example Company Pty Ltd).
To setup a bank account for a company, most banks will require the following documents:
- Signed copy of the Company Constitution
- ASIC Extract (to verify current officeholders and shareholders)
- Certificate of Incorporation
In addition to the documents above, you should have handy the ABN and TFN which they may require. Also, don’t leave the documents with the bank! They should be able to take copies before you leave.
One final tip, if you are setting up a bank account for your company to carry on a business, it is important to partner with the right bank. Things to consider are whether provide commercial lending facilities, do they provide a merchant facility and do they provide data feeds to online accounting software like Xero?
What is a company?
A company is a unique structure which for statutory purposes imitates the characteristics of a natural person. It is a completely separate legal entity from its owners and means that it can raise debt, sue and be sued. A company can derive an income, hold assets, raise debt, pays tax, carries on a business and a lot more. Companies are managed by officers which are called directors and secretaries.
Company advantages and disadvantages
For example, as of July 2021, the costs to set up a company from Quill Group is $1,712 (Inc GST) which includes the following:
How much does it cost to set up a company?
The costs involved to set up a company include:
- Legal and taxation advice on the best structure for your situation
- Drafting of the constitution
- Preparation and lodgement of the ABN and TFN applications
- Setting up a bank account
- ASIC incorporate fee
- Preparation of Company Constitution (through our legal document provider)
- ASIC incorporation fee which is currently $512, which indexes annually
Preparation and lodgement of ABN TFN applications
Please also note that the above fees are purely for the establishment of the company – it does not include any legal, accounting or taxation advice.
Frequently Asked Questions FAQs
Who can set up a company?
As we have discussed above, there are a few different elements to establishing a company. A corporate solicitor is best placed to assist with the drafting of a constitution and an accountant is best placed to assist with the facilitation of the company establishment process.
Accountants can provide you with a constitution however these are generally acquired through a legal document service provider who provides the legal sign off on the documents.
Do companies pay less tax?
This depends on your circumstances you should seek advice from an accountant to determine if this will be the case for you.
First of all, companies are tax using a flat rate vs a natural person who is taxed using a marginal tax rate system, which effectively means the more money you earn, the more tax you pay.
Note: This is a simplified illustration not including any deductions, offsets or surcharges.
You will notice in the illustration there are two types of tax rates, base rate entities are taxed at 25% and all other companies are taxed at 30% (FY2021-22). While we are not going into detail as to what a base rate entity is here, in simplistic terms, it is a company that is carrying on a business. You can view further information on what a base rate entity is on the ATO’s website.
Secondly, you need to consider whether the income you are receiving is Personal Service Income (PSI). PSI is income that is mainly a reward for an individual’s personal efforts or skills. There are rules in place which prevent people from diverting their income to a company in an effort to reduce their tax if the income they receive is PSI. We won’t go into any further detail on PSI here however you can read more about it on the ATO’s website or you can use their PSI determination tool to see if your income is PSI.
Can I still be personally liable for debts of the company?
This depends on whether you are a director of the company or not. As directors are the people charged with the responsibility of running the company, they can be personally responsible for certain liabilities.