Setting up a company: basic steps

Introduction

This article explains the basic steps to take when setting up a new company in Australia. Although each state has small discrepancies, the basic procedure, outlined below, is the same

There are many company structures in Australia – the most commonly chosen is the ‘proprietary company’. These are denoted by the words “Pty Limited” or “Pty Ltd”.

To help you differentiate, here are the major differences between public and proprietary companies are:

  • Proprietary companies must have at least 1 shareholder but no more than 50 non-employee shareholders. Public companies must also have at least 1 shareholder, however, there is no limit on the number of shareholders;
  • Proprietary companies must have at least 1 director who must ordinarily be resident in Australia. Conversely, public companies must have at least 3 directors – 2 of whom must ordinarily be residents in Australia;
  • Proprietary companies cannot engage in any activity that would require the lodgement of a prospectus (except for an offer of shares to existing shareholders or employees); and
  • Proprietary companies are not required to appoint an auditor.

You need to find out if a company structure best suits your business needs. We recommend that you seek legal or other professional advice about your particular circumstances. At this stage you should also make sure you understand what your legal obligations will be if you become a company officeholder.

When a company is registered under the Corporations Act 2001 ('Act') it is automatically registered as an Australian company. This means that it can conduct business throughout Australia without needing to register in individual State and Territory jurisdictions.

Businesses that are not companies (e.g., sole traders and partnerships) are required to register their business name with the appropriate State/Territory authority (you can find a list on the Australian government's business.gov.au website ). However, this is not necessary if the business is conducted under the name of the person or persons involved; that is, first name and surname, or initials and surname.

Registration or use of a business name:

  • Does not create a legal entity (only registering a company creates a legal entity); and
  • Does not allow the use of privileges to which a company is entitled, such as a corporate tax rate or limited liability.

A business name has no legal status. If a company carries on a business in a name that is different to its company name, it must register the business name with the appropriate State/Territory authority.

While the requirement to register business names is not under the Act, business names are still recorded by ASIC's National Names Index, and the register against which proposed new company names are checked includes business names.

Registration

A company is a legal entity which is born when it is registered with the Australian Securities and Investments Commission (ASIC). In the eyes of the law, it is treated as an individual, separate from the existence of its directors, employees and so on. Thus, a company has the power to own and dispose of property, sue and be sued, and enter into contracts.

The name: Choose a name and ensure it is available and suitable for registration by searching the ASIC’s name database. A company name must indicate the company’s legal status. So a proprietary company must include the word “Proprietary” or the abbreviation “Pty” in its name. Although you might be taken by a particularly quirky name, some words and names cannot be used in company names without Ministerial approval.

These include words such as “building society”, “trust”, “university”, “chamber of commerce” and “chartered”, as well as words suggesting a misleading connection with Government, the “Royal Family” or the Sydney 2000 Olympics. The aim of such restrictions is to ensure that a company’s name does not mislead as to the company’s activity or purpose. ASIC may also refuse to register names which are offensive or suggestive of illegal activity.

Reserve a company name:

If you thought of a name last year but have only just gotten around to starting the company, for whatever reason, you probably didn’t realise that you can ensure that the name cannot be taken by another company until you are ready to register it. To reserve the name, you simply complete and lodge ASIC form 410 – Application for reservation of a name, with the prescribed fee. If the application is approved, the name will be reserved for a period of two months.

The application will approved unless the name is:

  • Identical to a name reserved or registered for another corporation or a name already listed on the national business names register; or
  • Unsuitable for the reasons above.

Using your ACN as a company name: If you prefer no name, you can nominate the ACN as the name. For example, your company name would be known as “000 111 222 Pty Limited”. In this case you do not need to complete or lodge form 410 or nominate a name on form 201, simply tick the appropriate boxes on the form 201 as required.

Choose a “constitution” or “replaceable rules”

A company’s internal management may be governed by either:

  • Provisions contained in the Corporations Law known as “Replaceable Rules”;
  • Or a Constitution (formerly Articles of Association);
  • Or a combination of both.

Companies are not required to have a separate constitution (formerly Articles of Association). Companies can simply take advantage of the replaceable rules contained in the Corporations Law as a means of internal governance. A company will only need a constitution if it wants to displace, modify or add to replaceable rules. For the sake of simplicity in the future, Net Lawman recommends you do draw up a constitution as it ensures your company is governed by rules chosen by you and the shareholders and may save time in the future should you need to change the rules swiftly for whatever reason.

Note: replaceable rules do not apply to a proprietary company while the same person is both its sole director and sole shareholder.

Benefits of a constitution

A company’s constitution has the effect of a contract between the company and each member, between the company and each director and secretary, and between a member and each other member.

If you choose a constitution come registration time, each person specified in the application must agree in writing to the terms of the constitution before the application is lodged. Simply – they sign the document.

A company may modify or repeal its constitution by passing a special resolution, that is, a resolution passed by at least 75% of the votes cast by shareholders entitled to vote on the resolution.

Replaceable Rules

A table of replaceable rules can be found in section 141 of the Corporations Act 2001. The table indicates the subject of the rule and the relevant section of the Corporations Law that covers each rule. We suggest you print the rules that are relevant to your company and distribute them to the members so that everyone knows what is expected of the company.

Consent from members, directors and secretaries

A proprietary company must appoint at least one director and one secretary both of whom must live in Australia. Written consent is required for each person who agrees to become a director of a company. The same person may act as director and secretary.

To be eligible for directorship, a person must not:

  • Be under 18 years old;
  • Be insolvent under administration;
  • Have been convicted of any serious offences as specified in the Corporations Act 2001; or
  • Be banned by a court or ASIC from managing a corporation.

Note: the written consents are not lodged with the registration application. However, the applicant for the registration must have the relevant consents when the application is lodged with ASIC and must give the consents to the company after the company becomes registered. Consents must be kept with the company’s records and directors and members details must be kept and recorded with the register of members.

Complete and lodge the application form

Once the relevant consents have been obtained then you must complete and lodge ASIC form 201 – Application for registration as a company together with the prescribed fee. Do not lodge the consents with ASIC. These must be kept with the company’s records. The completed ASIC form 201 can be lodged in person at any ASIC Business Centre.

The ASIC form will require the applicant to state:

  • The proposed company name, or ACN number;
  • The class and type of company;
  • The registered office details;
  • The principal business office details;
  • Director(s) details;
  • Secretary details;
  • Member(s) details; and
  • Details of shares.

The completed application form must be signed by the applicant who can be either an individual or company.

Australian Company Number (ACN)

When a company is registered with ASIC it obtains an Australian Company Number (or ACN). An ACN is a unique 9 digit number allocated by ASIC to each company.

A proprietary company must also have the words “Pty Limited” as part of its name, which can be abbreviated to “Pty Ltd”.

A proprietary company must legibly display its company name and it’s ACN on:

  • Every public document issued, signed, or published by or on behalf of the company;
  • Every negotiable instruments (for example cheques and promissory notes) signed by or on behalf of the company;
  • All documents lodged with ASIC; and
  • The common seal (if the company has a common seal).

Registered office

As stated above, each company must have a registered office in Australia where communications can be sent and where the secretary or its agent is present. On registration the address specified in the application becomes the address of the registered office. A company must usually keep its company register at the registered office.

Minutes of meeting

A company resolution is a formal expression of a decision made in a meeting of company directors or members. Resolutions and company meetings are recorded in the company register in the Minutes of Meeting.

Share register

A company share register must be kept at the registered office. A share register must be kept for each shareholder of the company.

Please note that the information provided on this page:

  • Does not provide a complete or authoritative statement of the law;
  • Does not constitute legal advice by Net Lawman;
  • Does not create a contractual relationship;
  • Does not form part of any other advice, whether paid or free.
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