A critical step when starting your business is to choose the right business structure. Should you operate through a company? Are you a sole trader? Or do you need to discuss the obligations of a Partnership or Trust? If you decide to establish a company, here are some key areas to understand within the Australian Securities and Investment Commission (ASIC).
Legislation and governance
The Corporations Act provides the overriding legislation for company law in Australia. Individual companies are governed by this Act but more specific rules are set out in the company’s Constitution. In older companies, the same role is played by the Memorandum and Articles of Association. ASIC has the role of administering corporate law.
ASIC requirements
Once your company is established, ASIC issues a Certificate of Registration and an Australian Company Number (ACN). The date on the Certificate will be used as the annual review date with an Annual Company Statement being sent to your registered address on this date annually.
All information on the Annual Company Statement should be reviewed by a director and a solvency resolution should be signed to confirm that the company is solvent. Any changes to your details must be notified to ASIC to avoid hefty penalties.
For many of our clients, we have been appointed the Registered Agent of their companies and review all of this information on their behalf.
Small business obligations
Of all the companies and businesses registered with ASIC, 96% of them are considered a small business with less than 20 employees. There are several legal requirements for every company if you are operating as a small business. The most common are:
- You must have a registered address in Australia.
- You must have a principal place of business (can be overseas).
- You must disclose personal details of directors (full name, date of birth, place of birth and their address which cannot be a PO Box).
- You must keep financial and other records for 7 years. This may include a share register, secretarial compliance, financial statements and all correspondence depending on the size of your business.
- You must review the annual statement, make sure your company is solvent, notify ASIC of changes and pay all fees and act in the company’s best interest.
Directors obligations
Under the Corporations Act 2001, there are many obligations to be met as a director of a company. ASIC has simplified these to:
- Being honest and careful when acting for your company.
- Complying with the legal obligations of the company as listed above.
- Keeping up to date financial records.
- Giving and receiving information that is in the best interest of the company.
- Always get professional advice from an expert if in doubt.
We note that there can be instances where directors are personally liable for company debts and it is imperative all directors understand their obligations and the risks associated with the role. Common examples include insolvent trading and becoming liable for outstanding company superannuation or PAYG withholding obligations.
Changing details
ASIC require you to notify them of any changes to your company details within 28 days. This deadline is very important as they are ruthless with charging fees if you lodge your ASIC form late. The company details that you may have to update include:
- Changing your principal place of business and/or registered address
- Changing the name of your company (please note this costs $403)
- Changing your company type (please note this costs $403)
- If you need to change any information regarding officeholder’s name, role or addresses
- If you want to appoint a new officeholder or cease an existing
- If you need to change any information regarding a shareholder’s name, beneficial status or addresses
- Transferring shares
- Changing a company’s financial year which must be done in writing
Strict Fees
There are strict deadlines when lodging ASIC forms as well as a requirement to pay your annual review fee within two months. Late lodgement penalties are $79 for lodgement after 28 days and $329 for lodgement after 56 days. If you receive a penalty for not lodging on time, it is unlikely to be remitted unless there are major circumstances involved. Failure to pay fees promptly can result in a substantial financial burden as well as ultimate deregistration if fees remain unpaid.
Be aware that there have been scam emails sent to ASIC customers requesting payment and/or company details. We advise not to click on anything in the email as they may contain a virus or fake details of payment. If you receive an email like this is it best to contact ASIC directly on 1300 300 630.
Business name
A business name is a name or title under which a person or entity conducts a business. To register a business name, you must have an ABN. You can check if the name is available on ASIC’s register and if it isn’t available then you will have to alter it to proceed.
Once you have registered the business name through ASIC Connect, they will email you a record of registration and you may trade under that name. The registration is either for 1 year at $36 or 3 years for $84. After this period, you will need to renew the business name.
If you are trading under a company name, you will not require a business name. This is only used if you wish to trade under a different name. If you hold a business name and then want to set up a company, the business name can be easily transferred across from you as a holder to the company.
Please note that if you do register a business name with ASIC, it doesn’t necessarily mean you own that name and it doesn’t prevent others from using it unless you register it as a trademark with IP Australia.
