When is it time to Register a Company?


Guest post by Tom Willis, Digital Marketing Manager, LawPath

Most Australian businesses don’t realise the impact legal structure has on their business. The majority of us will start our entrepreneurial journey with an ABN (Australian Business Number), and operate with this as a sole trader or as part of a partnership. However as the sales treacle in and expansion becomes a necessity it is important to understand the process and benefits of registering a company (aka incorporating). And although registering a company may seem like a daunting experience, it will prove to be an essential part of getting your legal foundations sorted as you move forward.

 

Keeping your finger on the pulse

The first few sales are always the most difficult to come by, and this struggle often leaves owners low on motivation. At LawPath we see many businesses lose focus when they don’t achieve instant results, raising doubts about the business’ future and testing their will to succeed.

We often find that the process of incorporating provides an instant kick of motivation for new business owners, in addition to legal stability and structure. Incorporation helps justify that you’re serious about your business and you consider it to be more than just a hobby on the side.

 

Authenticity is everything 

Nothing feels better than securing your first sale. It’s an exhilarating feeling that doesn’t leave in a hurry, and if your products / services are of good quality then chances are that your new customers will want to refer you to friends, family, co-workers, etc.  

This is where authenticity becomes a key factor, as customers will be more likely to refer friends if they can ensure they’re recommending and incorporated, established and reputable business.

 

Is your business leaving you liable?

Many sole traders don’t realise that they are personally liable in the event of something going wrong in the business. This often isn’t considered when starting out, however as you begin to gain traction it’s vital that you consider how business liability could affect you.

When you register a company you create a ‘corporate veil’ between you and your company. This means that a company lawsuit would most likely only put the assets of your business at risk rather than your personal assets (e.g your house, car, etc).

 

Help needed!

Anybody running their own business knows how overwhelming busy periods can be. However the more work you take on the more risk you take, resulting in tight deadlines and less communication. It could be time to hire your dream team!  

When bringing on employees, you’ll want to ensure that you’re operating as a company to limit liability. Employees will enter into an agreement with the company rather than you personally, which you’ll be thankful for in the event of things going pear-shaped.

 

How are companies taxed?

We all want to pay less tax, and many Sole Traders would be horrified to know that they’re potentially paying more tax than need be!  

In Australia corporate taxes are calculated at 30%, which is a flat rate. This is different to personal income taxes which work on a progressive scale and are based on entire earnings.  

For example, a company can declare that 60% of earnings are paid in salary, where the other 40% is deemed as profit. In this case, the self-employment tax would not be paid on the 40% profit.

 

Looking to raise funds?

We all have grand plans for expansion, and often this involves seeking the assistance of investors. How do you make yourself an attractive investment?  

Registered companies are just about mandatory when looking for investment, with all propriety limited companies consisting of a generic structure made up of shares. This makes life easy for investors as the exchange of investment for shares is seamless.

 

In closing..

When your business becomes more than a hobby, it’s time to register a company. Whether you’re looking for investment or bringing on employees, incorporation makes the process easier, safer and legally accurate.  

Businesses often fret at the prices charged by high-end law firms, but new cloud-based services make company registration simple to understand, affordable and fast. Online incorporation solutions will provide you with an ACN within minutes, including helpful steps through each step of the process.

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