The company business structure is one of the most common business structures, and with good reason.
While it’s not always going to be the best choice for the business owner, a company structure certainly provides a number of attractive benefits.
Here are 10 reasons why you might consider starting a business under a company structure.
If you’re uncertain about which business structure is ideal for your new business, a Liston Newton business structure expert can help. We provide advice and guidance on which structure is best for your situation, and help you understand how to build a business that’s geared for growth.
1. Easy set-up
While starting a business as a company isn’t as simple as getting off the ground as a sole trader, it’s certainly not a hard process. It just takes a number of steps that need to be followed.
In a nutshell:
- Register as a legal entity
- Register company name with ASIC
- Apply for ABN
- Establish governance rules for your business
- Decide company officeholders
- Determine share structure
- Choose shareholders
- Register for the right taxes
2. Limited liability
One of the big benefits of the company business structure is that it’s considered a separate legal entity, entirely separate to your personal assets. The company entity itself is operated by a director, or directors, and owned by its shareholders, so the bulk of the liability is borne by the company itself.
This means that in the event that the company should find itself facing legal action, or financial difficulty, the company entity itself shoulders the liability. The shareholders of the company are only liable for the debts that the company has incurred that match their share percentage.
3. A company is a more attractive investment option
A business that operates under a company structure is typically geared towards taking on investors. Potential investors are more likely to invest in a company too, as they can clearly see the percentage of the business they’re investing in, and understand where their investment is being used.
With the benefits of limited liability, this also makes a company structure a low-risk investment, which is an attractive incentive for potential investors.
4. Straightforward transfer of ownership
As a company structure is built with flexible growth options, and allows for easy transfer of ownership. The act of transferring business ownership can all be done through ASIC, and is even available to be done through ASIC’s online portal.
While selling your company is much more involved, transferring ownership itself is fast, efficient, and takes the hassle and heartache away from passing on the name of a business you’ve worked hard to build.
5. A tax-effective business structure
As an individual operating as a sole trader, it’s exciting to watch your business grow. But when you cross the threshold into the 45% tax bracket, you start to see almost half of your income carved away by high tax rates.
This is one of the reasons to set up your business under a company structure: companies receive a flat company tax rate of either 27.5% or 30%, depending on their income.
So if you foresee strong growth and a high income for your business, setting up as a company will be a much more tax-effective option.
These flat tax rates can also help individuals minimise their tax, through the use of an additional structure known as a ‘bucket company’. This is a completely legitimate, legal way to distribute your earnings and minimise the amount of tax you pay.
6. Good flexibility for future growth
A company structure enables future expansion, as this structure doesn’t have a lifespan. This means it can continue indefinitely, generating wealth, until it gets dissolved. This makes it the ideal structure for a family business.
As this structure also allows for the easy addition of owners and shareholders, there is no limit to how large it can grow, meaning the future is unlimited. The flexibility of a company structure also makes it possible to change business structures in the future.
7. Well-defined governance processes
While a company structure may appear rigid, this is actually a good thing. When setting up a business as a company, one of the first steps is to put a clear shareholder agreement in place.
This outlines the governance rules, dispute processes, and exit protocols, and provides a strong support structure for confident decision making.
These well-defined governance processes means that everyone involved in the company is on the same page, and shareholders understand how and why business decisions are made.
8. Incentivise employees
As a company, providing employee incentives is a great way to build and retain a high-performing team. This can include an employee share program, or providing bonuses for hitting certain targets, or exceptionally good work.
While other business structures can theoretically incentivise their employees, the nature of a company structure makes this a much more attractive process for the business owner. For example, a sole trader business wouldn’t be able to offer a strict share program, and any employee bonuses would come directly out of the owner’s pocket.
9. Government grants and incentives are available
Starting a business under a company structure also provide the opportunity to receive Government grants and incentives.
A good example of this is the Government’s R&D incentive, which enables companies to claim a refundable tax offset of up to 43.5%. A newer incentive is the Innovation Incentive Concession, which offers a tax offset that’s equal to the investment made for early stage innovation companies.
The availability of these grants and incentives also serves to make a company an attractive option for investors.
10. Clear commercial advantages
Starting a business as a company provides clear commercial advantages. For example, when compared to a sole trader, a company is perceived as a much larger, sustainable, more professional enterprise. So when it comes to choosing between a company and a sole trader, clients and businesses alike are much more inclined to engage a company, based on these simple perceptions. This can make it hard for a lot of sole traders—and a clear reason why setting up a business as a company is often a better choice.