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Starting a Company

March 28th, 2008 · 20 Comments

In order to get the AEReS project underway I wanted to set up this blog, and for that I wanted to register my own .com.au domain name. I did a search online for a decently priced registry service, but then in the process of signing up there was a point where I had to enter my Australian Business Number (ABN) or Australian Company Number (ACN) number. I had heard that the .com.au domain was reserved for businesses but I didn’t realise that it was actively done by checking your registration in order to grant you a .com.au domain.

I was planning on starting my first company later on in the year, not because I had a clear idea where any income was coming from yet, but just to start learning how to use the corporate structure and to run a company. I am a firm believer in learning by doing, so I figured I would start a company, get the hang of how to run it, then worry about profitability later. Since I needed an ACN number to register the .com.au domain name I figured what the hell and registered my company on the 13th of March.

My company is called Allbutt Holdings Pty Ltd and will be the company I use to own and operate all my other companies that I have planned. Registering a company is a surprisingly easy and uncomplicated process to go through. Even though you are creating an independent legal entity when you do so, registering a company is easier than getting a visa to visit the US (as I found out on a recent holiday there, and not that much more expensive I might add)!

The government agency responsible for registering companies in Australia is the Australian Securities and Investments Commission (ASIC). If you go to that page there are a series of tabs to navigate around the site. The second one says “For companies”. If you mouse-over this one there is a drop down list of various pages with information related to starting up a company. There is lots of very good and detailed information here about running a company. Of particular note is all the information on, and references for, your legal responsibilities for running a company such as what records you have to keep and what submissions you have to make to ASIC.

Once you have read through that and fully understand what it means to register a company the most relevant page for the actual registration is the one entitled “Starting“. This is what I will be covering in this post. According to this web page there are 7 steps to registering a company. They are:

Step 1: Decide on your business structure

Step 2: Choose a company name

Step 3: Determine if you will operate under replaceable rules or a constitution or a combination of both

Step 4: Obtain consents – member(s), director(s) and secretary (secretaries)

Step 5: Complete and lodge the application form

Step 6 (optional): Get a commemorative record of registration

Step 7: Get to know your legal obligations


Step 1 just describes the difference between the corporate structure, ie owning a company, and the business structure. They are different entities legally so it is important to pick which one suits your needs.

Step 2 is straightforward though interestingly there is a list of words that are restricted when deciding on a name for your company. Step 3 is harder to understand. All companies operate under a set of rules which lay out what a company and its office bearers can and can’t do. There are a set of standard company rules which comply with the Corporations Act (2001), which are called the Replaceable Rules. They are called the Replaceable Rules since you can choose to operate your company under these rules or you may choose to replace them with other rules, still in keeping with the Corporations Act. The replaceable rules are listed at this page. If you are just starting out it is easiest to simply use the replaceable rules.

Step 4 is where you take the form for registering your company (the 201 form) around to your various office bearers to get them to sign it. If you are starting a private company, ie one not listed on the stock exchange where all the public companies are listed you only need one director. Having a secretary is optional for a proprietary (private) company.

Step 5 is where you complete the application form. You can then either post it into the ASIC or take it into one of their registered offices. Taking the form in your self is by far the fastest and easiest way. The ASIC web site doesn’t say but the five methods of payment listed on the page entitled Fees for lodging documents and how to pay them doesn’t apply to the 201 form fees. This fee must be paid upon submission or the form won’t be processed. You have to show identification if you are using the personal cheque so a bank cheque or a money order from the post office are probably your best bet if you are sending in your application. If you take your application in in person to an ASIC lodgement centre you can also pay in cash. You can’t use a credit card though apparently that is a facility that is coming soon. Keep an eye on that how to pay page to see when that becomes available. As for how much you have to pay to lodge your 201 form this is more difficult to find. There is a web page that you may come across which lists the various fees for various forms. The fee listed for the 201 form is on pg 2 and is listed simply as:

Application for registration as an Australian company

Part 2A.1 company (s112)

  • having a share capital ($400)
  • not having a share capital ($330)

All private companies are considered as having a share capital, ie a person or group of people own that company entirely, thus own all shares in that company. Therefore if you are registering a proprietary (private) company you will need to pay $400 to register it. If you were registering a public company you would pay $330 to lodge the 201 form. The fee is a little clearer on pg 12 of the 201 form its self which lists the two prices as:

  • Public or proprietary company having a share capital $400
  • Public company limited by guarantee $330

Step 6: There are very cool commemorative certificates of company registration you can order once you have registered your company. The framed version is a little pricey ($119.95 at the time of writing) but looks nice on the wall.

Step 7: Good information telling you about the legal responsibilities you have now that you have followed steps 1-5.

I found some points a bit unclear on the 201 for when I was filling it in so this is what I found out. At question 2 Details of the Company, you just need to tick Pty Ltd if you just want the initials listed with your company name, or you can tick the full words if you want. You don’t need both. There is no need to worry about the other boxes if you are registering a private company.

When you get to the section of Question 2 asking about the Type and Class of company (on pg 2), you tick “Proprietary company” and “Limited by shares”. I am not really sure what the “Unlimited by share capital” box means. Perhaps someone who knows the answer to this can leave a comment below.

You need to have a registered office, so fill this bit in. The registered office can be different from the place that you actually carry out the business of the company. The questions ask about this.

Question 3 you fill in only if the company you are registering will be owned by another company.

Question 4 is where you appoint the office holders of the company. As I mentioned above. You only need a single director if you are a proprietary company. You can however have more than this and can appoint a secretary if you want. At least one director and secretary (if appointed) must reside in Australia. There are lots of spaces for appointing directors and/or a secretary. Just leave the ones you don’t need blank.

Question 5 is about the share structure of your company. You can split your company into however many shares you want. In order to own that company you must then buy those shares. Question 5 is where you nominate how many shares your company has been split into. There is a big table of share classes which is just a way of differentiating between different types of shares if you need to. You don’t have to use different share types if you don’t want to. Different share types can be used if you want to give the holders of different share types different rights. To make it easier you can just make all shares ordinary shares (ORD). Having selected the share class, you then fill in the table saying how many of each share class your company has been divided into and how much these share cost. I split my company into 1000 chares worth $0.10 each, so I had to pay the company $100. Remember a company is NOT yours just because you registered it. A company is an independent legal entity. By registering it you have caused it to come into being, but to own it you must buy its shares.

Owners of a company are referred to as its “members”. You fill in the details of the members of your company in Question 6. The directors which you nominated in Question 4 are simply the people who will run your company, not the owners. They can be the same person, but the details of this person or people need to be entered in both questions including address details. You also enter how many shares of each type each member took up and how much they paid for them in a table at Question 6. There are multiple places to enter members in this question. Feel free to leave the unused ones blank.

Once you have then signed and lodged the form you will then be the proud owner of your very own company.

Tags: Companies · How to...

20 responses so far ↓

  • 1 Brad // Mar 31, 2008 at 6:13 pm

    Nice summary of the ASIC site!
    I’m currently in the process of registering my second Company and paying CASH at the ASIC office is definitely the quickest way. (I say quick, however I recall a 1.5 hour wait in the line with 3 other people! At least it avoids dealing with Australia Post delays…)
    Just remember to send your annual tax statements to the ATO (even if its a Nil balance) thus avoiding further dealings with government departments!

  • 2 FastLife // Mar 31, 2008 at 6:48 pm

    Thanks Brad. Yes I was lucky on the afternoon I went in. There was no one ahead of me so I was called straight up. Gave them my form, handed over my dollars and they gave me my certificate of registration. All done in about 10 minutes. Going in in person was definitely much easier than posting the application!

  • 3 Anne Marie Curle // May 7, 2008 at 5:22 pm

    Thanks for the insight into the ASIC site, I am contemplating starting a company (upgrading from a Family Partnership) but the one thing I am a bit confused about is Tax. My husband will be the director and operator, looks like I will be the secretary but the question I have is, come tax time, how do we determine my husbands & my “income” for personal tax returns, would this just be based on the profit from the company. He won’t be paid a wage as such it will still continue that he gets paid by the company he does work for, pays out money (petrol, tolls etc – he is a courier) from this income and then whatever is left over I assume is profit, which would be classed as his (and my) income ??? Hope this makes sense, I want clarification before I go further so if someone has some advice that would be good

  • 4 FastLife // May 8, 2008 at 2:07 am

    Hi Anne Marie, yes I get you. While I am neither an accountant or corporate lawyer, and thus it would be well worth speaking to one for more specific advice, from what I gather the income of the company you register would need to be kept completely separate from any income you may receive from the company for your own use. If you form a company it is a completely independent legal entity, thus you can’t just help your self to its money, even if you were the one who registered the company. Thus there is a very clear distinction about how income from the company is taxed. Any and all revenue received by your company belongs to your company and thus is taxed at the corporate tax rate which in Australia is currently a flat rate of 30% (http://www.business.nsw.gov.au/aboutnsw/climate/A14_corp_tax_rates.htm).

    If your company pays for the expenses incurred by your husband in performing company business then this is a legitimate business expense incurred by the company and will be shown on your company’s tax return.

    Only if the company pays your husband a wage for services rendered, or you receive a directors fee or some other form of payment from the company will this need to be reported in your personal tax return.

    It is important to keep in mind that any income received by your company minus expenses is your company’s profit, not yours. You control the company, but you your selves are not the company.

    People use the corporate structure for this very thing. As an individual you earn an income, the government taxes it you you get what is left. If you form a company, your company earns an income, can use what ever it needs to to perform its business, then gets taxed on what ever is left at the corporate tax rate.

    The benefit for the owners/directors of the company is they can choose how much they get paid by the company, and therefore what their individual tax liability is. Without a company, a person just earns whatever their job gives them and has to be taxed at the individual rate for all of it.

    I hope that makes some sense. It is getting near to tax time, it would be worth speaking to your accountant for specifics on tax rates and how to maximise your income by legitimately proportioning your incomes between you. For example, an individual can earn up to $30,000 and pay only $0.15 in tax for the portion of the amount between $6,001 and $30,000. Similarly, if you earn more than $30,000 only the portion of your wage between $30,001 and $75,000 is taxed at $0.30 in the dollar. Thus you would have to be earning more than $75,000 for it to be worth while setting up a company to help minimise your tax purely on the grounds of income tax. A company doesn’t get a tax free threshold like an individual does, so a company earning $75,000 pays more in tax than an individual does.

  • 5 Wally // Jul 11, 2008 at 3:36 pm

    Hello, great useful information! I am also in the process of starting my own thing. I was wondering if there are any benefits registering for an ABN first or ASIC’s 201 form.

    *I am aware your advice is of a non-professional nature.

  • 6 Chandana // Jul 20, 2008 at 10:40 pm

    A very good introduction to fill out the table showing Individual Shares for a new comer like me! I really appreciate if you could answer my question. Three of us are planning to register a company. Just like in youe example i.e. $0.10/share x 1000 shares=$100, do we need to work out this total share cost in terms of how much each of us putting into the business? In other words, say each one of us putting $10,000 so the total would be $30,000. So do we need to show up shares to reflect the total of $30000 (i.e. if one share is $0.10, then do we need to quote ‘300,000’ shares to account for the total of $30,000 OR simply use some numbers as in your example. This means if all three of us taking up equal shares with a total of 1500 shares (500 shares per member), and with each share worth $0.10, each member will pay $50 for his share!

    Appreciate your answer.

    Thanks & regards
    Chandana

  • 7 FastLife // Jul 21, 2008 at 11:33 am

    Hi Wally. There is a benefit in lodging your ASIC 201 form (registering a company) before applying for your ABN from what I understand. The first is that an ABN is an identification number given to an entity capable of running a business, and is used to identify the entity to the Tax department primarily, and other government agencies that need to know who you are. That entity can be a person, or a company.

    If you register your company first, it will actually be your company, not you, applying for your ABN. In this case the Australian Business Register will use your Australian Comany Number (ACN) to form your ABN. You can thus use just your ABN on all your documentation rather than having to use both numbers, since your ACN will form a part of your ABN.

    An explanation as to the difference between the ACN and the ABN can be found at:

    http://help.abr.gov.au/content.asp?doc=/Content/17869.htm&placement=ABH/FAQ&usertype=BC

    I hope this helps.

  • 8 FastLife // Jul 21, 2008 at 12:44 pm

    Hi Chandana,

    The shares in a company that each member owns is a measure of the proportion of a company that each member owns. If, for example, you each paid $50 for your share of the company when registering, you now all own an equal share in the company and the company has $150 from the sale of these shares. If the company then received $30,000, regardless of the source, you would now all have an equal share in a company which now has $30,150 in cash and/or assets. It doesn’t matter where that money came from, even if only one of you put in all that money, you would still all hold an equal share, since you all have the same number of shares in the company.

    So from the point of view of ownership of the company it doesn’t really matter if you buy your initial share of the company with your $10,000 each, or add it later. Probably the most important thing would be to document everything. Always remember that a company is a independent entity. If you give it $10,000, that is now the company’s $10,000 and you can’t just take it back again later. You can of course arrange to loan your company $10,000 with zero interest if you like, in which case you can later receive the money back. You just need to enter into a contract with your company to do this. This is worth noting, particularly if you think you will be topping up company cash reserves from your own private money in the future. It is the in the company’s best interest to have it documented exactly what are the obligations of the company when receiving money from private individuals. If, on the other hand you were only putting in this initial amount and no more, it would probably be easiest to simply buy your initial shares of the company with your $10,000 each. You can make the shares worth however much you want, ie 100 shares of $100 each or 1000 share of $10 each etc.

  • 9 Chandana // Jul 21, 2008 at 8:13 pm

    Hi Haydn,

    Many thanks for your comments. I have read the philosophy behind your AEReS project and it is absolutely fascinating! I will use this forum to communicate with future issues.

  • 10 Danny Yee // Oct 3, 2008 at 5:19 pm

    A useful summary, thanks!

    I thought about going through this, but decided getting an ABN as a simple sole-trader was a lot easier. There are still a few reasons a holding company would make sense – estate planning would be simpler, among other things – so I may reconsider that at some point.

  • 11 Michael // Jan 30, 2011 at 7:17 pm

    Hi Haydn,

    Thanks for the info on steps to register a company. I have a question, with regards to Form201, Question 2: Detail of the company, to register a Pty Ltd, which box do I have to tick? the boxes are

    Pty/Ltd/Proprietary/Limited/No Liability/NL/no legal elements

    There’s no box of Pty Ltd

    Regards,
    Michael

  • 12 FastLife // Feb 11, 2011 at 2:02 pm

    Hi Michael, My appologies for taking a while to answer, I have just got back from New Zealand and wasn’t watching my email. To answer your question, you are allowed to tick more than one box at question 2, you tick the boxes that are pertinent to your application. If your company is a private company, you will need either the word Proprietary or the abbreviation Pty associated with the name (you can choose whether you want the whole word or just the abbreviation). If the members or shareholders of your company’s liability is limited by the shares in the company (or by guarentee) then you will need the word Limited or Ltd associated with the company’s name.

    Thus usually someone setting up a small, private company for themselves to operate a business through will usually tick both the Pty. and the Ltd. boxes.

    I hope that makes sense. The description of this also outlined on the ASIC web site at:

    http://www.asic.gov.au/asic/asic.nsf/byheadline/starting%20a%20company%20or%20business#step2

  • 13 Anya // Nov 2, 2011 at 4:54 pm

    Thank you so much. This was very helpful.

  • 14 Navid // Jun 4, 2012 at 11:05 am

    Hi Haydn,

    A quick question, do you know if the value of the shares you start off with will have any impact, cost wise, e.g. taxes, fees or charges? I.e. I have selected to allocate 100k shares at a value of $0.10 per share. Are there any costs involved with the total amount paid on these shares? I noticed you had only selected $100 for yours?

    Regards,

    Navid,

  • 15 FastLife // Jun 4, 2012 at 11:59 am

    Hi Navid,
    Unortunately such matters always depend on where you come from as different countries have different taxation laws and accounting practices. In Australia actually buying shares, whether that be in your own company or in a publically listed company, does not give rise to any additional charges or taxes than you had prior to buying the shares. Most people get paid after tax has been taken out of their wages. So if you have $10,000 post-tax dollars, you can buy what ever you like with it.

    The shares you now own will only have tax ramifications when it comes to either disposing of the shares or if you are paid dividends as a result of owning those shares. If you sell the shares at either a profit or a loss there will be tax ramifications, as there will be if you are paid dividends from the company as a result of owning those shares. Simply owning the shares however does not, in Australia at least as far as I understand Australian corporate and tax law, affect your tax liability. I hope this helps.

  • 16 Damien // Jan 18, 2013 at 6:11 pm

    Hi Haydn,
    Wow, firstly I would like to say thanks and appreciate the time and effort you spent putting this post up, it is incredibly helpful and now I know how to fill in the shares part.

    My questions is; if my company needs $2000 to buy something, how do I ‘give’ it to my company and what do I have to fill in to do so?

    Many thanks and regards,
    Damien

  • 17 FastLife // Feb 19, 2013 at 9:49 am

    Hi Damien, my apologies for the delay in responding. I have often had to do just that for my videography business which I run through my company. There are two main ways that come to mind to “give” your company some money to get started. Firstly you can buy shares in your company. When setting up your company you would have had to buy a set of shares. You would have set the price and the number of shares to whatever was convenient or necessary at the time. In order to raise funds a company can sell additional shares which you would then own and the company can then use the money for running company business. Note: There are rules about how many shareholders a private company can have, but here we are talking about you buying additional shares in your own company so you probably won’t need to worry about this.

    A second way of financing your company’s operations is by lending your company some money. Presumably you are setting up your company to one day make a profit. Lending your company money is a good way of giving it the financing it needs but then being able to easily get the money back once your company is on its feet. You need to document everything that your company does and so it is good practice to draw up a legal contract for the loan which specifies the conditions for which the loan is made and the terms of the loan, ie how long the loan is for, what the interest rate is, under what circumstances the company has to pay it back etc.

    You can make up an agreement yourself but it is worth having the proper legal document made up. You can get a lawer to help but that is expensive. I got mine made up online at:
    http://www.lawlive.com.au/unsecured-loan-agreement-template-individual-company/

    This online template helps you generate the specific details for your loan and then generates a legal contract for your and your company to sign and it only costs $49.50 (at the time of writing). You can then of course adjust the details of the contract once you have it, and use it again in the future to make a second loan to your company etc. So I found it quite useful and a good way of generating a legal contract to use.

    Some additional things to think about. If you finance your company by selling shares, to get your money back at a later date, if that is what you chose to do you would have to do a share buy back. Any profit you made (based on the price you set for the shares you sold back to the company) would be subject to capital gains tax. If you loaned money to the company which it then paid back according to the conditions of the loan, any profit you made would be subject to your normal income tax. So keep that in mind when deciding which way to go too.

    I hope this helps.

  • 18 Ryan // Oct 29, 2013 at 12:12 am

    Excellent Article simplify the process.
    Genuinely appreciate the time you’ve put into this

  • 19 Lawrence Michell // Oct 20, 2014 at 4:34 pm

    Hi there,

    Thanks for the hints in completing the form it’s not easy….

    In relation to the share structure table, once we have allocated the amount of shares we are going to assign and purchase, when do you buy them?
    Is the amount added onto the application fee?

  • 20 Anna // Jun 30, 2015 at 3:24 pm

    this is such a help – simple and straightforward. thank you for taking the time to document your steps for the rest of us!

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