How to Incorporate a Company

- December 14, 2011 4 MIN READ

You’re about launch your new business venture and you’ve decided that a company is the best vehicle for you to conduct your business. You like the fact that conducting business through a company will shield you and your personal assets from the debts of the company as your liability, in general, will be limited to your shareholding in the company.  You also like the fact that your lawyer can structure your company in a particular way that will be beneficial to your business from a tax perspective.  You acknowledge that your company will be regulated by the Australian Securities and Investments Commission (ASIC) and that you will be required to comply with the various rules set out in the Corporations Act 2001. 

Setting up a company and understanding all the rules and compliance requirements may seem daunting.  However, if you’re starting off on a shoe string budget and bootstrapping your entire venture yourself, paying expensive legal fees is something you’re probably trying to avoid.  As every entrepreneur has done, I’m going to borrow Nike’s slogan and enlighten you – “Just do it……. yourself”. 

Before jumping into it blindly, there are a few things you need consider:

1.  A company is a separate legal entity and can enter into contracts in its own name, incur debts, enforce its own rights, have obligations enforced against it and be sued.

2.  A company has 2 main “organs” – the directors, and the shareholders.  The shareholders are the owners of the company, and the directors are the individual stewards that determine the corporate actions of the company.  The company’s constitution and rules under the Corporations Act 2001 set out the decisions that the board of directors are entitled to vote on, and those that the shareholders in a general meeting are entitled to vote on, and the voting thresholds that are required for a resolution to be passed.

3. Every Australian company must be registered with ASIC, and will be allocated an Australian Company Number (ACN) as its unique identification number.  If the company is an operating company carrying on a business (as opposed to a holding company), the relevant company will need to register for an Australian Business Number and a Tax File Number at https://abr.gov.au.

Once you have determined who will be the directors of your company (generally, each of the key people involved in making decisions relating to the business), and the shareholders of the company, you need to decide what will be the name of the company.  It is not mandatory to have a name, as the company can be identified by its ACN, however, it is commercial practice to name a company.  Check to see if your proposed company name is available at http://www.asic.gov.au.

Now, you should be ready to set up your company.  Simply, follow the steps set out below:

1.  Go to http://www.asic.gov.au and download ASIC form 201 “Register a company” from the drop down selection on the right hand side of the homepage.

2.  In the lodgement details section of the form, insert your personal contact details.  This is so ASIC can contact you if they need to.

3.  In the section relating to state/territory of registration, my recommendation is to insert “Victoria”.  The state/territory of registration does not need to relate to your place of business.  It is merely a technical legal requirement under the Corporations Act 2001.  The reason I recommend Victoria is that if there is a transfer of shares in a company that is registered in Victoria, there will be no stamp duty payable upon the transfer.  However, if any other state/territory is selected, stamp duty may be payable.  This is an important consideration if you are planning an exit in the future.

4.  In the next section of the form, you need to insert your company name, and tick the legal elements “Pty.” and “Ltd”.  Also, insert the relevant details in relation to the registered office of the company, and the principal place of business.  Generally, these will be the same address.

5.  In the section relating to the appointment of officeholders, insert the relevant details of each director and secretary of the company.  Make sure that at least one director of the company is an Australian citizen.  Also, ensure that each person that is acting as a director of the company is aware of their statutory and common law directors’ duties.  This is because if there is a breach of directors’ duties, the directors may be personally liable for any debts of the company (in legalese, “piercing the corporate veil”).

6.  The next section of the form relates to share structure.  This section may appear complicated, but to simplify things, insert “ORD” as the share class code, and insert the full title, “Ordinary shares”.  Insert the total number of shares on issue.  Generally, I recommend issuing 1000 ordinary shares, so that if a shareholder holds 1 ordinary share, they hold 0.1% of the company.  This enables percentage shareholding in one tenth increments.

7.  The final section of the form is in relation to the shareholders of the company.  In this section, you need to insert the personal details of each shareholder, and the number of shares they hold in the company.  If a shareholder has invested $5,000 in the company and in return received 500 ordinary shares in the company and there is no further amount owed to the company by that shareholder, insert “Nil” in the column titled “Amount unpaid per share”, and insert “Yes” in the column titled “Fully Paid”.  If the shareholder is a trustee holding the shares on trust for certain beneficiaries, insert “No” in the column titled “Beneficially held”.  However, if the shareholder directly holds the shares and there is no trust arrangement, insert “Yes” in that column.

Once you have completed the ASIC form 201, you need to sign it and deliver it to ASIC, together with a registration fee of $426.  If you personally deliver the form 201, your company will be registered immediately and you will be issued with your certificate of incorporation and ACN.

Now you’re ready to do business.  Good luck!

Izhar Basha is the Co-Founder and Director of FireHosiery Pty Ltd (and a former Senior Associate at Clayton Utz)