A company or corporation is a legal entity that is separate from its members. When you form a company, you form an imaginary legal person which can hold and dispose of property, take legal action and sign documents. Because of this separate legal entity a company can have assets and liabilities and make profits and losses quite separately from its members.
- Separate legal entity from the shareholders or members, as well as those who control its operation.
- The limited liability nature of a company. Shareholders aren’t normally liable for debts unless they’ve given a personal guarantee or acted negligently.
- Companies face a lower tax rate than the top marginal rate for individuals.
- Perpetual succession
- Transfer of ownership: Shares can be bought and sold without affecting the operations of the company
- Dividends: A company can pay dividends to shareholders which include tax credits (i.e. franked dividends)
- Higher setup costs
- Greater ongoing compliance costs
- More complex reporting obligations
- The requirement for separate company and personal records
- Amounts paid to directors are subject to taxation (i.e. withholding) and other on costs such as workers compensation. Distributions cannot be made as simply as done in a partnership.
- High penalties for director negligence
- As companies are governed by the Corporations Act, there are strict rules in regard to how a company and its officers should behave.
- Fringe Benefit Tax may apply to personal use of company assets
Disclaimer: This fact sheet is intended to be general information. It is not a substitute for legal or other professional advice. HHH Partners does not accept responsibility for loss to any person, who either acts or does not act because of this fact sheet.
A company pays income tax on profits as a separate legal entity at the rate of 30%.