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The German-Australian Chamber of Industry and Commerce
Level 10
39 - 41 York Street
Sydney NSW 2000
Australia
Tel.: +61-2-8296-0400
Fax: +61-2-8296-0411
Mail: info@germany.org.au
Internet: http://www.germany.org.au

*1 Proprietary companies are also classified as large or small. A proprietary company is classified as small only if it meets at least two of the following criteria:

• Gross operating revenue of less than AUD 10 million for the financial year
• Assets of less than AUD 5 million at the end of a financial year
• Fewer than 50 employees at the end of a financial year
• ABN a company needs to register for an ABN.
• TFN a company needs to register for its own tax file number.

The advantages and disadvantages of setting up a proprietary limited company:

As with any business structure, there are certain advantages and disadvantages, and the benefits of a proprietary limited set-up will depend on your individual business circumstances. The advantages can include:

• The liability of shareholders is limited to the share capital they have subscribed and any debts which they may have personally guaranteed.
• Shareholders and directors can be employed by the company under normal salary and wage conditions, and their income taxed at personal rates
• Shareholder's personal assets are not under threat if the company incurs financial loss and debts.
• Company taxation is at a fixed rate. A company's income tax is calculated as a percentage of the taxable income earned by the company during the financial year. The current rate is 30 %.
• Compared with other business structures, the transfer of company ownership can be relatively simple. The company does not have to be wound up in the event of the death, disability or retirement of any on the persons involved.

The disadvantages can include:

• Forming a proprietary company can be a complicated task and, with the level of legal paper work required, it can take up to six weeks to form the company.
• There are greater regulations to adhere to under the Corporations Act and through the Australian Securities and Investment Commission.
• There is increased record keeping required.

*2 An application for incorporation must be lodged with the Australian Securities Investment Commission (ASIC). The applicant lodging the form need not be a prospective director, secretary or shareholder.

*3 Proprietary companies are divided into classifications of large or small. Large proprietary companies are those that satisfy any two of the following criteria:

• Where consolidated and operating revenue exceeds AUD 10 million
• Where consolidated and gross assets exceed AUD 5 million
• Where the company and its controlled entities have 50 or more employees

Small proprietary companies are therefore those that do not meet any two of the three criteria listed and are relieved of certain financial reporting requirements in their annual returns under the Corporations Act and are not required to hold annual general meetings.

*4 One director must resident in Australia, but additional directors not. One person may hold both positions of company director and secretary.

*4.1 and at least two directors must be resident in Australia and one company secretary who must reside in Australia

*5 When you purchase something for use in your business, you must:

• receive and keep a record of your suppliers ABN or
• be satisfied that the sale is excluded from the ABN rule otherwise
• withhold from the payment.

Anyone carrying on an enterprise (this is usually a business) should quote their ABN in relation to goods or services they supply to another enterprise. If they dont, the general rule is that the payer must withhold 48.5 % from the payment to the supplier and send the withheld amount to the tax office. Some payments are excluded from this rule.

*5.1 TAX RATES 2004-05

*5.2 Tax on capital gains: Capital gains tax (CGT) is not a separate tax, but a component of income tax. This means that capital gains are taxed at the rate that applies as a result of the level of your other taxable income.

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Other company structures in Australia:

Sole Trader

If you conduct a business alone, without a partner, then you are classified as a Sole Trader. This definition applies whether or not you have employees working for you. It is an inexpensive business to establish and maintain, with the least reporting to Government.

• Liability: The sole trader is personally liable for all business debts, which means all assets may be at risk.

Partnership

A Partnership enables a group of people to contribute their time, talents and money towards the business. In return they share the responsibilities and profits. In the absence of a formal partnership agreement the law will assume that each partner has an equal share. The responsibility of running the business is shared, and ability to raise finance for the business is enhanced. It should also be noted that all partners may be personally liable if the business incurs any debts. If you are entering into a partnership it is a good idea to draw up a partnership agreement, there is a fact sheet about this available at the local Business Enterprise Centres (BECs) in Australia.

• Limited partnership: A limited partnership is a variant of an ordinary partnership. The NSW Partnership Act makes provision for limited liability partnership structure whereby the liability of a partner contributing capital can be limited to the amount of financial contribution, provided that the person doesnt take part in the management of the business.
• Limited partner: A limited partner is a passive investor in a business. A limited partner does not manage the business and has limited liability towards debts and obligations of the business to the amount contributed.
• General partner: A general partner is responsible for the management of the business. A general partner has unlimited liability for the debts and obligations of the business and has the power to bind the limited partnership.

Trusts

A trust is a business structure whereby the trustee holds property and earns and distributes income on behalf of the beneficiaries. One of the most common types of trusts is a family trust. The trustee (usually a company) owns the property and distributes income to the beneficiaries of the trust, who are usually family members. In this way a person who would otherwise earn a large taxable income can split his or her income between family members.

Income is earned by the trust company. The trustee is empowered to distribute the trust income to whom of the beneficiaries and it what proportions he or she chooses. In the case of a family trust the trustee could for example distribute income to the children of the family and thereby reducing the taxable income of the parents.

• Setting up a trust: Your accountant or solicitor will help you to establish a trust. As it is a complicated way of conducting business you will need professional advice to ensure that the laws are complied with and you get the most out of this type of arrangement.
• Advantages of a trust structure: The main advantage of a trust structure is tax minimization.

Cooperatives

A cooperative is a business structure that has corporate status, that is, it is a separate legal entity and has the advantages of limited liability. Cooperatives are created under the Cooperatives Act 1992 (NSW).

• Differences between a cooperative and a company: The main difference between cooperatives and companies is that under a company structure there is a profit motive, returning dividends to the members of the company, whereas a cooperative operates on a service motive, providing adequate services to its members and any return of capital is limited. Unlike a company, all members of a cooperative have only 1 vote, irrespective of their shareholding. It is run in a similar fashion to a company. A board of directors is elected which controls the management of the business of the cooperative.
• Advantages of a cooperative structure: A person joining a cooperative takes advantages of the facilities provided by the co-operative. These services may include advertising, marketing, and purchasing and well as other types of services. Members of the cooperative in this way can enjoy the commercial benefits of a larger organization.