A company is a common form of business structure. Under law it is considered a separate legal entity, entitled to sue and be sued, enter into contracts and own property. This offers a level of legal protection not available to other business structures.
The main benefits of a business are:
- The business pays the flat corporate tax rate. This is lower than the highest rate for individuals.
- The debts and liabilities of the business are separate from the director(s). Creditors of the business cannot access the personal assets of the directors (unless the directors have provided a personal guarantee).
- The business structure of a company allows for an ongoing existence in the event of management or personal changes.
The disadvantages of a business include:
- The need to comply with strict regulations.
- The greater cost involved in establishing the business.
- Profits distributed to shareholders’ are taxable.
- Lenders are often reluctant to provide finance unless they receive a personal guarantee from directors or shareholders.
If you have further questions, please contact us at frank@franklaw.com.au
This is not legal advice.
Written by Tim Cargill & Zdenka Marinov and edited by Andrew Graham.