Starting a business is tough. Between coming up with a name, doing market research, building a business model, oh and of course funding and running it – registering the actual company is yet another item to add to the list of things that you’ve never done before.
To help you along the registration journey, we’ve set out some of our tips below. You can also listen to our podcast on the topic here. Our podcast and this post assume that you are registering a proprietary limited company (Pty Ltd) which is the most common form of company in Australia.
Why and when do you incorporate? (2:04)
The commercial answer: Do it when your awesome idea is ready to be shared with the world!
The legal answer: Do it when you start working with third parties (i.e. a developer, a landlord, the government for a grant, etc.). It means that if something goes wrong it’s the company that’s responsible, not you (subject to some exceptions, sorry! There are always some exceptions).
How do you structure your company? (4:00)
There are lots of different ways to set up your business. The most popular way is to set up two companies, one company to hold all the valuable assets and a second company, which is wholly owned by the holding company, to operate the business. See typical holding company / operating company structure diagram, below left.
Of course, if you’re trying to keep costs low (who isn’t), then there’s no reason why you can't start with one company and then later down the road put in place a holding company (just make sure you get tax advice before you do this!).
What details do you need to register your company (5:45)
Here is a summary of the details you will need to have to register your company:
Company Name: Visit ASIC connect and search the online business name register to see if your name is available. We will chat about the difference between a company name and a trademark in our podcast in a few weeks, but remember that a company with a similar trademark or name may take action against you so you should always check the IP Australia website to search for existing trademarks.
Principal place of business: this must be a physical location (that’s right, you can’t use a PO Box). The principal place of business is where you primarily work (and yes, your living room counts).
Registered office: Your registered address is the place where all correspondence from government bodies etc will be directed to (it’s usually the same as your principal place of business, at least at the start). This address has to be in Australia and can't be a PO Box.
Directors: A proprietary company must have at least one director, however you can appoint more than one. A Pty ltd company doesn't have to have a secretary, again though, you can appoint one if you want (this is a good idea where you only have one director - see our tip on this below). You need to obtain written consent from each person you are appointing as a director / secretary and keep this with your company records. ASIC has a template you can use. You will need the following details from the proposed directors and secretary: - Given name and family name - Any former names (if applicable) - DOB - Place of birth - Address Tip: while it’s not required for Pty Ltd’s to appoint a secretary, if you are only going to have one director we suggest appointing one anyway (it makes it easier to sign documents under the Corporations Act).
Shareholder (sometimes referred to as members - it’s the same thing!): You will need the proposed shareholders to provide their: - Given name and family name or entity name and number - Any former names (if applicable) - DOB - Place of birth - Address Tip: See item 'How do you hold your shares' below for some tips. You also need to obtain written consent from each shareholder about the number of shares they agree to take up and the amount to be paid to the company. This must be kept with your company records. ASIC has a template you can use.
Share type: Keep it simple! We suggest issuing ordinary shares at the beginning.
No. of shares: Our tip – issue on the higher side (i.e. 100 or 1,000 instead of 1 or 2 to each person), it just makes it easier down the track when you start issuing smaller proportions to investors, employees or contractors as you can only issue shares in whole numbers.
$ paid per share: When the company doesn’t have any value typically shares are issued for a nominal amount (i.e. $1 or $0.01). If you are not sure, have a chat to your accountant on this one.
$ unpaid per share: Assuming shareholders are paying for their shares upfront (and likely being issued for a nominal amount) this should be $0.
Shares to be held beneficially (i.e. are they being held on trust?): It sounds confusing, we know! All it is asking is whether the person gets the direct benefit of the shares, eg dividends. For example, when shares are held by a person as trustee, nominee or on account of another person they are NOT beneficially held (i.e. the member (the trustee etc) holds the share for the benefit of someone else). On the other hand, if you are holding the shares directly in your name (and not in a trustee capacity) then YES they are being held for your benefit.
How do you hold your shares? (7:00)
Short answer is, it depends (ergh, we know such a lawyer answer). Here are a few things to consider:
Your tax situation: a discretionary family trust is a way of distributing income to more than one person (called beneficiaries) so you can plan your families tax a bit better;
Asset protection: while shareholders have “limited liability”, which just means they are only liable up to the amount they paid for their shares, if something goes wrong you may want your shares to be held in a different entity from the rest of your assets so it’s only those shares that someone can come after;
The cost: the more entities you set up the more it costs, whether on registration fees, annual ASIC fees or ongoing compliance e.g. accountant fees – the $$ can start to add up quickly;
The purpose: don’t just set up another entity (trust or otherwise), make sure it makes sense for you and your circumstances.
There’s no reason why you can’t hold your shares personally and then move it to a trust or company later. BUT remember there are likely to be tax consequences if you transfer shares to a different entity later. Always get tax advice before doing this!
How do you allocate shares between the founding shareholders? (9:00)
You can try and use fancy metrics such as “slicing pie” or you can try and quantify an idea, but we suggest the best thing to do is to have a chat with your fellow founders. A few things to consider are:
Who is taking the biggest risk?
What’s everyone’s role and what’s everyone’s contribution (both at the date of registration and going forward)?
How much is the initial idea worth?
We will chat about vesting mechanisms, which can help manage founder contributions in future weeks.
What types of shares do you issue? (11:20)
You might be tempted to take the approach that the founders of Alphabet, Facebook, and Snap Chat all took where they created two classes of shares, issuing themselves so-called super voting shares that give them effective control over all decisions.
However, we reckon keep it simple and issue ordinary shares. Remember, whatever you set up now you will have to explain to an investor or a buyer in the future. So if you don’t know what rights attach to what shares or why you issued “flowering monkey shares” or “golden star shares” (you can give share classes any name you like), then we suggest leave it out.
How do you physically register the company and how much does it cost? (13:00)
It’s as simple as filling in a form. All the details you need are set out in item 3 above. You can either register directly through ASIC here or you can use an online provider who can also provide all your registration documents (i.e. members’ register, constitution, first board minutes, etc.). Here are examples of some online providers:
eCompanies (cost $530);
EasyCompanies (cost $544);
Register a company ($561).
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