Plan and prepare

Before you register, know what you’re signing up for. Understand the responsibilities, risks and decisions that come with managing a company.

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Decide whether a company is right for you

Understand what a company is

A company is a business structure that is a separate legal entity from the people who own or run it.

This means the company can:

own property
enter contracts
borrow money
sue and be sued.

This is different from structures such as sole traders and partnerships, which are not separate legal entities.

A company continues to exist even if its owners or officeholders change.

Company business structure

When starting a business, one of the first things you need to decide is which business structure to use.

The most common business structures in Australia are:

sole trader
partnership
company
trust.

Each structure has different legal, tax, financial and practical consequences. Your choice of structure can affect:

how decisions are made
who owns and controls the business
what tax and reporting obligations may apply
what records need to be kept
what costs are involved
the level of personal responsibility and risk.

You should compare different business structures and understand the implications before deciding to register a company.

ASIC provides guidance on companies and company obligations, while other government resources (such as business.gov.au) provide broader information about business structures and legal requirements.

If you are unsure which structure is right for your circumstances, you should consider getting professional advice.

Choose the type of company

If you decide that a company is the right structure, you need to decide what type of company to register.

The main types of companies are:

proprietary companies
public companies (which includes listed and unlisted companies).

The most common type of company for small business is a proprietary company limited by shares, often called a Pty Ltd company.

A proprietary company:

must have at least one director
must have at least one shareholder
may have the same person as both director and shareholder
must not offer shares to the public.

If you are unsure what type of company is right for your circumstances, you should consider getting professional advice.

Benefits, costs and responsibilities of a company

Before registering, you should understand what running a company involves.

A company may be suitable if you want:

a structure separate from you personally
continuity regardless of ownership changes
a formal ownership structure through shares.

A company is not just a registration. It comes with ongoing legal and administrative obligations. It is generally more costly and complex to run than other business structures.

Before registering a company, you should understand that companies need to:

keep company details up to date
keep proper financial records
keep registers and other company records
pay ASIC fees, including annual review fees
pass solvency resolutions where required
notify ASIC of certain changes
comply with company laws
comply with other laws that may apply to the business.

Being a company director is an active legal role. You should only agree to become a director if you understand the responsibilities and are prepared to take them seriously.

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Understand company roles, responsibilities and regulation

The main roles in a company

A company has two main types of roles: officeholders, who manage and administer the company, and shareholders, who own the company.

Officeholders include:

directors
secretaries.

Officeholders play an important role in making decisions for the company and helping it meet its legal obligations.

As a director, you must understand the roles and responsibilities of the people involved in running the company.

The role and responsibilities of a director

As a director, you are responsible for managing the company and ensuring it meets its legal obligations. To do this, you must:

act in the best interests of the company
act with care and diligence
act for a proper purpose
avoid conflicts of interest
not misuse your position or company information
make sure the company keeps proper financial records
make sure the company does not trade while insolvent
make sure the company complies with the law.

These responsibilities apply:

even if the company is small
even if you are the only director
even if you rely on advisers, such as accountants, bookkeepers or lawyers.

You should only consent to be a director if you understand the role and are prepared to take responsibility for it.

Your personal legal and financial risks

A company is a separate legal entity from you personally, but this does not mean directors have no personal risk.

In some circumstances, you may face personal legal or financial consequences. For example, this may happen if you:

breach directors' duties
allow the company to trade while insolvent
fail to keep proper financial records
give personal guarantees for company debts
provide security over personal assets for company borrowing
breach other laws that apply to the company.

If you breach your obligations as a director, you may face civil penalties or criminal prosecution, and may be required to repay losses, even where the breach was unintentional.

Lenders and trade suppliers often require personal guarantees or security - such as over a family home - when a company borrows money. If your company cannot repay the loan, you may be personally required to do so.

Other laws may also make you personally liable for certain company obligations. For example, the Australian Taxation Office can recover some unpaid company tax and superannuation guarantee liabilities from directors personally through director penalties.

You should understand these risks before agreeing to become a director.

The role of shareholders

A shareholder, also called a member, owns shares in the company.

A proprietary company limited by shares must have at least one shareholder. A shareholder can be an individual or another legal entity.

Shareholders own the company through their shares, but they do not own the company’s assets. The company owns its own assets because it is a separate legal entity.

Shareholders are generally not responsible for running the company’s day-to-day operations. That is usually the role of the directors.

Shareholders may have rights under the law and, if the company has one, under the company’s constitution. These rights may include the right to:

vote on certain company decisions
receive notices of meetings
access certain company information
receive dividends if dividends are declared
share in surplus assets if the company is wound up.

In many small companies, the director and shareholder are the same person. If you are both a director and shareholder, you need to understand that these are different roles. When acting as a director, you must act in the best interests of the company.

Business advisers do not replace director responsibility

Companies often use advisers such as accountants, bookkeepers, lawyers, business advisers or registered agents.

Advisers can help with:

tax
record-keeping
legal documents
lodgements.

However, using an adviser does not remove your responsibilities as a director.

You must still:

understand the company’s position
ask questions
make informed decisions
ensure obligations are met.

You should not agree to become a director only as a favour to someone else, or only to help another person register or run a company, unless you understand the role and are prepared to take responsibility for it.

ASIC’s role and limits

ASIC is Australia’s regulator for companies, financial markets, financial services and consumer credit.

In relation to companies, ASIC’s role includes:

registering companies
maintaining company and business name registers
receiving certain company lodgements
providing information about company obligations
administering and enforcing company laws.

Most companies will need to deal with ASIC at different stages of their lifecycle, including when they register, update company details, complete annual review requirements, or lodge certain forms.

ASIC provides information to help people understand company obligations. However, ASIC does not:

decide whether a company is the right structure for you
provide legal, tax, financial or business advice
manage a company for its directors
resolve private disputes between directors, shareholders or business owners.

If you need advice about your personal circumstances, you should consider speaking with a professional adviser (such as an accountant or lawyer).

Other laws and regulators that may apply

Company law is not the only law that applies to your business.

You may also need to understand obligations relating to:

tax and superannuation
employment and workplace relations
work health and safety
privacy
fair trading
consumer protection
contracts
licences and permits
environmental regulation.

Different regulators are responsible for these laws.

Before starting a business, you should identify which laws, registrations, licences and permits may apply to your business.

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Protect yourself if you are asked to become a director

Do not agree to become a director in name only

Be cautious if someone tells you that you will be a director on paper only, just for registration purposes, or that you will not need to be involved in the business.

A director is legally responsible for the company, even if another person is making the day-to-day decisions.

Before agreeing to be appointed as a director, you should make sure you understand the company’s:

business activities
financial position
risks
legal obligations.

Make sure your decision is voluntary and informed

You should only agree to become a director if your decision is voluntary and informed.

Do not sign documents if you feel:

pressured
rushed, or
unsure about what you are agreeing to.

This includes signing things like:

appointment documents
company registration forms
bank or finance documents
Director ID information
personal guarantees.

You should ask for time to read the documents and consider getting independent legal or accounting advice.

Pressure can come from a business partner, employer, adviser, spouse, family member or friend.

If you are uncomfortable or unsure, pause before signing anything and seek independent professional advice (such as from an accountant, lawyer or financial counsellor).

Key questions to ask before agreeing to become a company director

Before agreeing to become a director, you should understand how the company operates and what is expected of you as a director.

You should ask:

Why am I being asked to become a director?
Who will actually run the business day to day?
What decisions will I be expected to make or approve?
What is the company’s financial position?
Does the company owe money to the ATO, employees, suppliers, landlords or lenders?
Are the company’s records, accounts and tax lodgements up to date?
Will I have access to financial records, bank information and key contracts?
Will I be asked to sign a personal guarantee or provide security over personal assets?
Who are the shareholders and other directors?
What happens if I later want to resign?

Considering these questions helps you assess the risks before taking on the role.

Watch for warning signs

You should be cautious and consider getting professional advice, especially if:

you are told the role is only a formality
someone else will make all the decisions
you are asked to sign documents you do not understand
the company has unpaid tax, employee entitlements, rent, loans or supplier debts
you are not given access to company records or financial information
you are asked to sign a personal guarantee or provide security
you feel pressured, rushed or unable to ask questions.

Act quickly if you are already a director and feel unsure about your appointment

If you have already agreed to become a director and are concerned, you should seek professional advice as soon as possible.

This may apply if you:

do not understand the company’s position
cannot access records
are not involved in decisions
feel you were pressured into the role.

You may need advice about:

your legal obligations
whether to remain as a director
how to resign
how to correct company records.

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Make key decisions before you register the company

Choose your people and ownership

Before you register your company, you must decide who will run the company and who will own it.

This includes:

officeholders (directors and, if applicable, a company secretary)
shareholders (owners of the company)
how shares will be issued and structured.

These decisions affect who controls the company, who makes decisions, and who is responsible for meeting legal obligations.

Choose your officeholders

Before registering a company, you need to decide who your company’s officeholders will be.

A proprietary company:

must have at least one director
may appoint a company secretary (most small proprietary companies are not required to have one).

Before appointing a director or secretary, you should make sure the person:

understands the role
is eligible to be appointed
consents in writing
is prepared to meet the responsibilities of the role.

At least one director of a proprietary company must ordinarily live in Australia.

You cannot appoint a person as a director if they are disqualified or otherwise prohibited from managing companies.

Check eligibility requirements

To become a director, you must:

be at least 18 years old
give written consent to act as a director
not be disqualified or otherwise prohibited from managing companies
meet the residency requirement that at least one director of a proprietary company must normally live in Australia.

You should check these requirements before registration.

If you appoint someone who is not eligible, or who has not consented, this can create legal and practical problems for the company and the person involved.

Get written consent from officeholders

You must make sure your company:

obtains written consent before appointing a person as a director or secretary, and
keeps this consent with its records.

You should not list a person as a director or secretary unless they have agreed in writing and understand the responsibilities of the role.

If you are listed as a company officeholder without your consent, you can ask ASIC to consider your situation.

Apply for your director ID before appointment

If you are going to become a director, you must apply for a director identification number (or director ID) before you are appointed.

A director ID:

is a unique identifier that a person keeps forever
helps confirm a person’s identity as a director
reduces the risk of fraud or misuse of director details.

You can apply for a director ID through the Australian Business Registry Services.

A person only needs one director ID, even if they are a director of more than one company.

Choose your shareholders

Before registration, you need to decide who will own shares in the company.

A shareholder can be:

an individual
another company
another legal entity.

Every proprietary company limited by shares must have at least one shareholder.

In many small companies, the same person is both the sole director and sole shareholder.

Before choosing shareholders, you should consider:

who will own the company
whether ownership will be equal or unequal
whether all shareholders will have the same rights
how future ownership changes might be handled
whether professional advice is needed.

Decide how shares will be issued

Shares represent ownership in the company.

Before registration, you need to decide:

how many shares will be issued
who will own those shares
what class or classes of shares will be issued
how much will be paid, or agreed to be paid, for the shares.

You must make sure your company:

keeps a record of its shares and shareholders (members register)
notifies ASIC of share and shareholder information and keep it up to date.

If there are multiple shareholders or different share rights, you should consider getting professional advice.

Get written consent from shareholders

A company must obtain consent from each person who agrees to become a shareholder.

The company should keep this consent with its records.

Before agreeing to become a shareholder, a person should understand:

what they are agreeing to
the amount (if any) unpaid on their shares
the rights or obligations attached to those shares.

ASIC provides a member consent template that companies can use.

Choose a company name

You can choose a company name or rely on your Australian Company Number (ACN) as the name.

If you choose a name, it must meet legal requirements.

A company name:

must not be identical to a name already registered or reserved
must include the company’s legal status (for example, Pty Ltd or Ltd)
must not include unacceptable or misleading words or expressions
must comply with restrictions on certain words - some words can only be used with approval.

You should check that your preferred name is available before applying.

Decide whether to register a business name

A company name and a business name are different.

A company name is the official legal name recorded on ASIC’s register.
A business name is the name you use to present your business to customers.

If your company trades under a name that is different from its legal company name, you will generally need to register a business name.

For example, if your company name is Smith Plumbing Pty Ltd but you want to trade as Melbourne Plumbing Co, you may need to register Melbourne Plumbing Co as a business name.

Registering a business name:

does not create a separate legal entity
does not give you ownership or trade mark rights.

Choose company addresses

A company must have:

a registered office address
a principal place of business.

The registered office:

must be a physical street address in Australia (not a PO Box)
is where ASIC sends official notices
may be different from where the company carries on its day-to-day business (for example, it may be the address of an accountant or lawyer).

The principal place of business is the main location where the company operates and must also be a physical address.

If the company uses someone else’s address as its registered office, it must have their consent.

For some small companies, the registered office address and principal place of business may be the same. For others, they may be different.

Decide how your company will be governed

You must decide what rules will govern how your company operates.

A company can use:

the replaceable rules in the Corporations Act 2001 (Corporations Act)
a written company constitution
a combination of both (where permitted).

These rules affect:

how decisions are made
how directors and shareholders exercise their rights
how disputes are handled.

Getting this right is important to help avoid confusion and disputes later.

Decide on replaceable rules or company constitution

You should decide whether to rely on the replaceable rules or adopt a company constitution.

Replaceable rules

Replaceable rules are standard rules set out in the Corporations Act. For many proprietary companies, the replaceable rules are the default option.

If your company is happy using these rules, it may not need a constitution.

The replaceable rules cover matters such as:

director powers
meetings
resolutions
share transfers
dividends.

Company constitution

You may choose to adopt a company constitution instead of, or alongside, the replaceable rules.

A company constitution is a written document that sets out rules for how the company will be governed.

A company may adopt a constitution if it wants to:

replace some or all of the replaceable rules
include more detailed governance arrangements
define rights and obligations between directors and shareholders
deal with specific ownership or decision-making arrangements.

A constitution may be particularly useful where:

there is more than one director or shareholder
ownership arrangements are more complex
you want greater control over how decisions are made.

If your company adopts a constitution, you will need to follow the rules contained within it when managing the company.

If you are considering a company constitution, you should consider getting legal advice to ensure it reflects your intended arrangements.

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Other considerations

Consider getting professional advice

Professional advice may be especially useful if:

you are unsure whether a company is the right structure
there will be more than one owner
family members or business partners will be involved
you are considering different share classes or rights
the company may borrow money or give security
you may be asked to give a personal guarantee
you are considering a company constitution
a trust is involved
you are unsure about tax, legal or financial consequences
you are being asked to become a director for someone else’s business
you are concerned you have been appointed without consent.

ASIC provides information about company obligations, but it does not provide legal, financial, tax or business advice.

If you are unsure, consider speaking with a professional adviser (such as an accountant or lawyer) before registering the company.

Consider other registrations, licences and legal obligations

Before starting a company, you should identify any other registrations, licences or legal obligations that apply to your business.

Depending on the type of business, this may include:

business registrations
licences or permits
obligations under other laws (for example, tax, employment or consumer laws).

You can use government resources, such as business.gov.au, to help understand what applies to your business and what steps to take.

You should also make sure you understand your responsibilities before agreeing to be a director.

A director must meet legal obligations and take an active role in managing the company.

Understand what information is public

Some company information will be publicly available on ASIC’s registers, including:

the company name
ACN
registered office address
principal place of business address
officeholder details
shareholder details.

You should understand what information will be public before registering.

If safety is a concern, options such as address suppression may apply. You should request suppression of this information before registration.

Small business director essentials Next step: Register and set up