5 Things to Know if you are using a Company Structure for your Business
Many businesses operate through a Company structure or through a Trust with a Corporate Trustee (ie a Company). What some don’t know is that there are obligations and requirements of Company Directors and Shareholders. Here’s 5 things to know about Companies.
- A Company is a legal entity. This means it, as an entity, has legal standing in the eyes of law. A legal entity has legal capacity to enter into agreements or contracts, assume obligations, incur and pay debts, sue and be sued in its own right, and to be held responsible for its actions.
- A Company is not the Directors and Shareholders by another name. Although Companies have Shareholder/s and Director/s the Corporations Act 2001 governs how a Company is to operate; its obligations and requirements. It is not at the whim of the Shareholder/s and Director/s how it should be governed.
- A Company’s money is not your money. Being a legal entity, if a business is run through a Company then the receivables and payables is the legal obligation of the Company. Money coming in and going out needs to be properly recorded for the Company as per its operations. Shareholders and Directors need to think about a Company at arm’s length. Unless the Company owns for example a car or mobile phone, then expenses associated with these are not the responsibility of the Company unless used for work purposes. Learn more about this by clicking here.
- Director/s and Shareholder/s must comply with the Australian Securities and Investment Corporation (ASIC) requirements. Being a Company Director or Shareholder is not just about running the business. ASIC is the primary administrator of Companies’ legal obligations and as Director/s and Shareholder/s there is a responsibility to understand the legal obligations and to comply with them. For example, there is an annual review requirement of ASIC to continue the registration of the Company, to ensure Company details are correct and for the Director/s to declare that the Company is trading solvent. A further example is if a Director or Shareholder changes residential address, there is a requirement to advise ASIC to update the Company information. Penalties apply for failing to comply with Company obligations. These are only two examples to highlight that there are obligations to having a Company structure not just a set-up and forget situation.
- A Corporate Trustee has the same obligations and requirements. As mentioned previously, sometimes businesses are run through Trusts with a Company as the Trustee (ie Corporate Trustee). This Company, although it may not have money coming in and going out (as this is done through the Trust), Company obligations under the Corporations Act 2001 still apply.
These are by no means an exhaustive list and explanations about Companies. Many businesses utilise their Accountant as their Registered Agent and Registered Office for their Company to facilitate ensuring that all Company obligations are met. Please note, at the end of the day Company Director/s and Shareholder/s are ultimately responsible for the Company. If you need assistance or more information about your Company please contact Balanix Solutions 07 32644783.