A company is a separate legal entity to the individual business owner(s). Companies are the most familiar choice when business owners are interested in restructuring their operations.
It is fairly well known that a company owns the business assets and provides some form of protection for personal assets. However, there is far more to consider when choosing a business structure than asset protection.
How Do Companies Work?
A company is run by a set of rules called the constitution. The constitution is normally set in place when the company is established, which outlines the powers of directors, shareholders, things that the company can do and so on.
Companies are governed by the ASIC (or Australian Securities and Investments Commission) who
ASIC also keep a public record of the company’s details on their system. You can access these details for any company in Australia by paying for a company search to be performed.
Each year, ASIC require that a Annual Review Fee is paid for each company in existance. This fee is currently $243 payable two months following the registration date anniversary.
Who owns a company?
Companies are owned by members or shareholders.
Can a Company Have Only One Director?
Yes, certain types of companies are allowed by ASIC to only have one director. These include Pty Ltd companies.
It is also important to note that the constitution must allow for the company to have one director.
Other Frequently Asked Questions:
Are companies eligible for the 50% Capital Gains Discount?
Unfortunately companies aren’t eligible for the discount.
We would rarely recommend that an investment that was to be considered a Capital Gains Tax Asset (or CGT Asset) be purchased by a company.
Ideally CGT Assets are held in the name of a family trust, individual, or self managed super fund which can all access the 50% CGT discount.
Do I have to pay myself superannuation on directors fees and wages?
Yes, the ATO has made it clear that directors fees and wages require superannuation to be paid on them. This is because the company is classed as their employer.
How do I pay myself from my Company?
There are a few ways of bringing money out of a company as the owner. This also has to be done within the rules set out.
- Drawings – Drawings are easy to take out, although you must be sure not to treat the company as an atm without considering other consequences. The main consequence is what is called “Division 7A”. This is where there is an outstanding loan owed from a shareholder (or their associate) back to the company. If these loans aren’t treated correctly, it can mean a nightmare to the shareholder who has drawn the loan.
- Wages or Directors Fees – Wages or Directors fees are the most simple and straightforward way of bringing money out of a company. You are treated similarly to the company’s employees, where super is payable and tax is withheld from the payments.
- Dividends – Dividends require that there are retained earnings in the company. (Retained earnings are profits that the company has made in prior years.) This also in most cases creates franking credits, which attach themselves as a sort of prepaid tax to those who receive the dividend.