What is a Pty Ltd Company? A Proprietary Limited Company is a separate legal entity with its own income tax liability.

It is incorporated under the Corporations Law and is regulated by the Australian Securities & Investments Commission (ASIC). A proprietary limited company must have at least one director and one shareholder (who can be the same person) and can have up to 50 non-employee shareholders. Liability of the shareholders is limited to the share capital they have subscribed and any debts which they may have personally guaranteed, so the personal assets of shareholders cannot be seized to pay company debts.

Company directors may still be liable for any debts, liabilities and legal actions held against their company. This type of structure would be useful for a small business which needs restricted liability with flexibility and tax advantages.

  • Set-up and ongoing costs of a company are higher than those of a sole trader and partnership
  • The process of establishing a company is complex and there are stringent tax reporting, administration and record-keeping requirements
  • A company pays income tax on its taxable income for the year at a fixed rated (currently 30%)
  • Transfer of company ownership can be relatively easy; the company doesn’t have to be wound up in the event of the death, disability or retirement of any of the key people in the business

Business characteristics that suit a company structure

  • Those involving risk
  • Where assets do not appreciate in value
  • High taxable income
  • Most type of businesses where ownership or appreciating asset can be split from business.

Other Advantages

  • The structure copes well with the introduction and departure of shareholders (by way of issue or sale of shares). The risk of shareholders is generally limited to their investment in shares.
  • Directors can be held liable for debts incurred by the company (while trading insolvent) and can also be sued if they are negligent or do not act in good faith.
  • However it is important to note (by way of comparison), that sole proprietors and partners are liable for all the debts of the business, while a director generally will not be held liable for the debts of the company if the company did not trade while insolvent and there was not a breach of duty by the Director.
  • The company structure copes well with the operational requirements of most businesses and growth or change in those operations.
  • The profits derived by a company are taxed and retained in the company until such time as the Directors and shareholders resolve to distribute those profits, in the form of a dividend to the shareholders.
  • To avoid double taxation, the benefit of tax paid on company profits is attached to the dividends in the form of an imputation credit.
  • As taxpayers are assessable on dividends, the company structure is generally not the best structure for holding appreciating assets that are concessionally taxed when sold.
  • There are definitely some disadvantages to Companies including Directors Loans & no CGT discount but your best option is to come and talk to us at BWD Accountants and we will guide you through a structured process to find what structure is best for you.

Contact our professional team today for a quote for a tailored package of services for your business! We are located in the Northern Beaches, Sydney and we would love to meet you!