Companies: How a Company Works

Proprietary Limited Companies (Pty Limited or Pty Ltd) are the most common type of company structure used in Australia by small businesses. The Australian Securities and Investments Commission (ASIC) administers the operations of companies using the Corporations Act.

A new company comes into existence when the promotors apply to ASIC for registration. On that date the company is formed.

A company is an entity which has a separate legal existence from that of its owners, managers operators, employees and agents. A company has the same power as an individual including the power to own and dispose of property, sue and be sued, and enter into contracts.

The main advantage of starting a company is the limited liability of its shareholders. The company may have debts however the shareholders are not liable in their capacity as shareholders for these debts. The Directors are also protected from the liabilities of the company unless they continue to trade whilst the company is insolvent (unable to pay it’s debts when due).

When a company is registered with ASIC it gets an Australian Company Number (ACN). This ACN as well as the words “Pty Limited” or “Pty Ltd” must be shown on all documents used.

Aside from limited liability for business debts, many take advantage of company taxation rates which are lower than the top tax rates for individuals. Companies also have the capacity to retain profits for future periods and uses.

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This is intended for general information and does not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought.

On May 20th, 2010, posted in: Know the Law by
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