Many individuals often wonder when starting a business if they can set up a company and be the sole director and shareholder. This article explores this.
Are you planning to operate a small business on your own?
There are two business structures that may be appropriate for a small outfit like yours: a single proprietorship (sole trader) or a registered company.
While you may consider setting up a single proprietorship, the Corporations Act of 2001 does allow you to set up a company with just one person to own and run everything.
If this is the way you want to go, then all you have to do is indicate your choice in the ASIC registration application as "a proprietary company with limited liability".
You will be both the sole shareholder and the sole director of your company.
Thus, your type of company is legally referred to as a sole shareholder/director proprietary company.
You may wonder why anyone would choose to register as a sole proprietary company rather than as a single proprietorship.
Well, there are some real advantages to being registered as a sole shareholder/director company. Here are some potential reasons individuals choose a company of a sole proprietorship:
* Legal personality of company.
Once a company is registered with the ASIC and an ACN has been is issued, the company becomes a legal entity with a personality that is independent and separate from its shareholder.
This distinct personality has important legal effects: A company can enter into contracts in its own name and it can also sue, and be sued.
If a company is in debt, the money owed does not automatically become the debt of the shareholder.
As a result, a civil lawsuit for the collection of a sum of money against the company is not necessarily a legal action against the shareholder.
This is because the liability of a shareholder is limited to the value of his shareholdings unless he previously signed a personal guarantee in favor of the one pursuing legal action. This built-in limitation is not available in single proprietorships or for sole traders.
So if you are conducting business by yourself, and you wish to limit your business liability, then the sole shareholder proprietary company is for you.
* Flexibility in ownership
If your business grows in the future and you wish to create incentives for your non-shareholder employees who have contributed to the success of your company, then a good way is to increase their involvement by transferring shares in the company to them.
This is also known as a stock option. Because of the company's structure, you can accommodate non share-holder employees into the company shareholdings without being required to terminate the legal status of the company.
* Continuity
Another advantage of the independent personality of the company is that it may continue to exist for the duration of its registration, notwithstanding changes in the ownership of the company's shares.
The death or retirement of a shareholder or the sale, transfer or assignment of the rights to a company's shares will not mean the termination of a company's existence.
You may one day decide to hand over the reins of the company to someone else, such as one of your experienced managers or employee-shareholders. Even when there is a change of directors, the company will still exist as its registered self.
It is worthwhile speaking with a legal adviser or accountant as to what is the best structure for yourself and your business. Also different countries may have different legislation on this so check locally as well.
It is possible to register a company online, but if this is a daunting prospect for you, there are appointed registered agents, who can advise and manage your online company registration.
How many shares do I need to register a company?
It is relatively easy for anyone to set up a new company in Australia. Registration can be completed online and in as early as one day. Other business requirements such as business name registration and goods and services tax registration may also be completed online. One question often asked is how many shareholders are required to register a company?
Do I Need a Public Officer for Company Registration?
While your company is a legal person by virtue of a certificate of registration, it will still need a live human being to perform specific acts on its behalf, like signing and submitting documents. For purposes of your company's registration and operations, you will need to appoint a public officer to represent your company in dealings with government agencies. These may differ from country to country so check with local goverments
How to get the company name you want and what happens once you secure that name
The choice of a company's name is crucial for every business or organisation. It may be a word or a series of words that is ideally used to set an entity apart from the other registered entities. Discover more about getting a new company name and what is involved.
