Thinking about “setting up a company” but not 100% sure what that actually means? You’re not alone. A lot of Aussie founders hear that a company offers protection or looks more professional, but the details can feel a bit fuzzy until you break it down.
In this guide, we’ll unpack what a company is in Australia, how it differs from other business structures, what’s involved in setting one up, and the key legal obligations to keep in mind. By the end, you’ll have a clear view of whether a company suits your goals-and what to do next if it does.
Let’s dive in.
What Is A Company In Australia?
In simple terms, a company is a separate legal entity. That means the company can enter into contracts, own assets, hire staff, sue and be sued-in its own name. It’s a distinct “legal person” from you and any other owners (shareholders).
This separation is powerful because it can limit your personal liability. If something goes wrong in the business, your personal assets (like your home or car) are generally protected-so long as you’ve done the right thing as a director and haven’t given personal guarantees or acted unlawfully.
Most Australian small businesses that incorporate use a proprietary limited company (Pty Ltd). This is the standard vehicle for startups and growing SMEs because it’s flexible, recognisable, and designed for private ownership.
Company vs Sole Trader vs Partnership: Which One Suits You?
Before you jump into incorporation, it’s worth comparing the common structures. The best option depends on your goals, risk profile, and growth plans.
- Sole Trader: Fast and low-cost to set up under your own name or a registered business name. You’re personally responsible for business debts and obligations.
- Partnership: Two or more people in business together. Easy to start, but partners are jointly and severally liable (your partner’s mistakes can become your problem).
- Company: Separate legal entity with limited liability for shareholders, better for raising capital and bringing in co-founders or investors. More set-up steps and ongoing compliance.
If you’re planning to scale, bring on co-founders, raise funds, or manage higher risk, a company structure often makes the most sense. It’s also the structure investors typically expect.
How Do You Set Up A Company?
Incorporating with the Australian Securities and Investments Commission (ASIC) is straightforward, but there are a few decisions to make along the way. A lawyer can help you tailor these choices to your business so you’re set up correctly from day one.
1) Choose A Company Name And Governance Settings
Pick a unique name (or use the ACN as your company name). You’ll also decide how the company will be governed-usually with replaceable rules or a tailored Company Constitution. A constitution sets out how decisions are made, share rights, director powers and more. If you’re serious about growth or investment, a custom constitution is worth it.
2) Appoint Directors And Shareholders
Every proprietary company needs at least one director who ordinarily resides in Australia. If you’re not sure how this works, read up on Australian resident director requirements to avoid delays or compliance issues.
You’ll also decide who holds shares, what class of shares you’ll issue (ordinary, preference, etc.), and how many. If you have co-founders, it’s wise to record roles, ownership and decision-making in a Shareholders Agreement early-it’s the single best way to prevent disputes later.
3) Register With ASIC
When you’re ready, proceed with your Company Set Up. After registration, you’ll receive an Australian Company Number (ACN). You’ll also need an Australian Business Number (ABN), and you may choose to register for GST if required (or when you hit the threshold).
4) Set Up Banking, Sign-Off And Record-Keeping
Open a company bank account and keep business and personal finances separate. Decide how documents will be executed-under director authority or with formal company execution. For the latter, review the rules for signing under section 127 so your contracts are valid and easy to enforce. When delegates sign on the company’s behalf, it’s also worth understanding section 126 (agents’ authority).
Finally, choose how you’ll sign-electronically or in hard copy. Both can be valid in many cases, but there are rules, so get across the basics of wet ink vs electronic signatures.
Who Runs A Company (And How)?
Companies are owned by shareholders and managed by directors. In a small business, you might be both. Each role has different powers and responsibilities.
Directors
Directors make day-to-day management and strategic decisions, and they owe legal duties to act in good faith, with care and diligence, and in the best interests of the company. If the company has employees, directors also need to ensure the business is complying with workplace safety and Fair Work obligations.
Shareholders
Shareholders own the company through shares. They don’t usually manage the company but they have key rights-like voting on major decisions and receiving dividends when declared. Their rights depend on the share class and what’s set out in your constitution or any shareholders agreement.
Decision-Making
For everyday decisions, directors can act on their own authority. For big-ticket items-like issuing more shares, selling the business, or changing the constitution-you’ll typically need shareholder approval. Clear governance documents help you avoid confusion and keep everyone aligned.
What Legal Obligations Do Companies Have?
Being a company opens doors, but it also comes with obligations. These aren’t scary once you understand them-and they’re part of running a professional operation.
ASIC Compliance And Record-Keeping
- Maintain an up-to-date share register and company records.
- Lodge changes to company details (directors, addresses, share issues) with ASIC in time.
- Pay annual review fees and keep your details accurate and accessible.
Establish internal processes early so updates don’t fall through the cracks. Good records reduce risk and make due diligence or investment much simpler later on.
Directors’ Duties
Directors must act in the company’s best interests, avoid conflicts, and prevent insolvent trading. If cash gets tight, take advice early-there are options, but the timing matters.
Contracts And Execution
When you sign contracts, make sure you’re signing on behalf of the company (not personally) unless you intend to give a personal guarantee. If a lender or landlord requests a guarantee, pause and consider the risks-our overview on personal guarantees explains the key implications.
Employment And Workplace Policies
If you hire staff, you’ll need proper Employment Contracts and to comply with Fair Work obligations-minimum pay, entitlements, and safe workplaces. Clear policies (like a staff handbook, privacy, and data security policies) help your team understand expectations and support compliance.
Customer And Consumer Law
If you sell goods or services, you must comply with the Australian Consumer Law (ACL). That covers fair advertising, product safety, and consumer guarantees. Your customer terms and website policies should reflect these obligations so your sales process is both compliant and customer-friendly.
Privacy And Data Protection
Collecting customer data? You’ll usually need a clear Privacy Policy and practices that align with the Privacy Act-especially if you have an online presence, use cookies, or run email marketing. Strong privacy compliance builds trust and reduces regulatory risk.
Tax, Accounting And Dividends
Companies have their own tax obligations and accounting requirements. Keep books tidy, work with a good accountant, and only pay dividends in line with the Corporations Act and your constitution. If you ever need to reimburse directors or move funds, be mindful of the rules around matters like a Director Loan.
What Legal Documents Should A Company Have?
You don’t need every document on day one, but getting the foundations right will save you money and stress long term. Here are the core agreements and policies most companies use.
- Company Constitution: Sets out governance rules, director powers, and share rights. A tailored Company Constitution gives you clarity from the start.
- Shareholders Agreement: Records ownership, decision-making, vesting, exit rules and dispute processes for multiple founders or investors. Link it with your constitution to avoid contradictions-start with a robust Shareholders Agreement.
- Directors’ Resolutions And Minutes: Document key decisions properly. Good governance isn’t just for big corporates; it protects you in day-to-day operations, audits and deals.
- Customer Contract or Terms: Your rules of engagement with clients-scope, pricing, warranties, liability, IP, termination. For online businesses, consider website or platform terms.
- Privacy Policy: Explains what data you collect, why, and how you store and share it. Essential if you collect any personal information online or offline.
- Employment Contracts And Policies: Set expectations, protect confidential information and IP, and ensure Fair Work compliance.
- Supplier/Contractor Agreements: Lock in quality standards, timelines, pricing, IP ownership and liability with your suppliers and contractors.
- Deeds And Signatures: Some arrangements are better documented as a deed rather than a contract. If you’re unsure, read the basics of what a deed is and how it’s executed.
It’s smart to map your customer journey and operations, then build the minimum set of contracts that cover your highest risks. As you grow, you can layer in more sophistication where it’s needed most.
Common Company Myths-Busted
When you’re new to companies, a few misconceptions can creep in. Here are some quick clarifications.
- “A company protects me no matter what.” Limited liability is a huge benefit, but directors can still have personal exposure-for example, if you give a personal guarantee or allow insolvent trading.
- “We’ll just figure out founder terms later.” Delaying ownership and decision-making rules (vesting, exits, valuations) often leads to disputes. A clear shareholders agreement up front is far cheaper than a dispute later.
- “Any signature is fine.” Execution rules matter, especially for lenders and landlords. Learn when to use section 127 execution and when a delegate’s authority under section 126 is appropriate.
- “I must always use wet ink.” Not always. Many documents can be signed electronically-just make sure you’re following the rules that apply to your situation. This quick guide to wet ink vs electronic signatures will help.
Practical Tips To Run Your Company Smoothly
- Separate everything: Keep company money and personal money separate, and put company assets in the company’s name.
- Document key decisions: Use board resolutions or minutes for major decisions. It’s proof you followed proper process.
- Standardise your contracts: Lock in clear customer terms, supplier agreements and employment documents. Review them annually.
- Review authority to sign: Decide who can sign what, and when to use director or company execution.
- Check guarantees: Before signing, ask whether a personal guarantee is really necessary and what it covers.
- Plan for change: If you bring in investors or expand, revisit your constitution and shareholders agreement so they still suit your business.
Key Takeaways
- A company is a separate legal entity that can own assets, enter contracts and limit shareholders’ personal liability when run properly.
- Companies suit businesses planning to grow, take on co-founders or investors, or manage higher risk-though they do come with extra compliance.
- Set-up involves choosing governance rules (ideally a tailored Company Constitution), appointing directors and shareholders, and registering with ASIC.
- Directors manage the company and owe duties; shareholders own it and vote on key decisions-clear documents keep roles and processes aligned.
- Core obligations include ASIC compliance, proper contract execution, consumer, privacy and employment law compliance, and sound record-keeping.
- Foundational documents-like a Shareholders Agreement, customer terms, Privacy Policy and employment contracts-protect your business from day one.
- Be deliberate about signatures and guarantees, and keep company and personal affairs separate to maintain limited liability.
If you’d like a consultation on setting up or reviewing your company structure and documents, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
