Advantages of incorporation and type of corporations in Australia

Thinking of starting a company?

The benefits of a company include:

• exist indefinitely (unless wound up);

• sue or be sued;

• invest money and borrow;

• transfer shares/ownership;

• receive funding or grants;

• buy or sell property;

• protect against personal responsibility for any debts or liabilities incurred by the company;

• limit personal liability for outstanding fees;

The type of Australian corporations:

Proprietary companies

1. Proprietary company limited by shares

The most common form of company in Australia is the proprietary company limited by shares. Proprietary companies tend to be small family businesses.

The Corporations Act distinguishes between small and large proprietary companies. To be classified as a small company, a firm must satisfy at least two of the following tests:

• consolidated gross revenue for the year is less than $25 million;

• an asset value of less than $12.5 million at the end of the financial year; and

• employs fewer than fifty people.

A company that does not satisfy this test is automatically deemed ‘large’. Large companies have stricter reporting and auditing obligations placed on them.

2.  Unlimited proprietary company

The second type of proprietary company is the unlimited proprietary company with share capital in which members are liable for all the debts of a company. It is not a common company form in Australia.

Public companies

1. Public companies limited by shares

These are generally large companies with a wide ownership spread. A public company may have a minimum of one member or owner, but is required to have three directors, two of whom must generally be Australian residents.

2. Public companies limited by guarantee

Public companies limited by guarantee are composed of members who undertake to contribute a guaranteed amount of money if the company is wound up. This company form is common in the not-for-profit sector.

3. Unlimited public company with share capital

The law also has provision for an unlimited public company with share capital, but this form is rare in Australia.

4. No-liability company

A no-liability company is a public company that does not have the right to require shareholders to make any contribution towards the debts of the company. The no-liability form of company must engage solely in mining activities and have the words ‘No Liability’ or the abbreviation ‘NL’ as part of its name.

Other forms of incorporation

Many companies are also incorporated according to the relevant state and territory incorporated association acts, which are regulated by state and territory offices of fair-trading.

Other legal structures include:

• Unincorporated associations

These are not separate legal entities, so members may be personally liable for such things as contracts entered into in the association’s name or injury caused by the association’s negligence.

• Co-operatives

These are state or territory based and are often used by organisations such as primary producers.

• Trusts and foundations

These operate under the terms of their individual constitutions or deeds.

• Acts of parliament

There is no standard structure for entities with their own establishing legislation. Each will have different reporting responsibilities and governance frameworks and can range from universities (e.g. the University of Western Australia Act 1911 (WA)), to statutory authorities (e.g. the CSIRO established under the Science and Industry Research Act 1949 (Cth)) and schools (e.g. the Sydney Grammar School Act 1854 (NSW)).