Resources - Standard Private Company

A company is “private” in that the directors may refuse to register a transfer of the company’s shares. The ownership within a private company is therefore restricted.

What is a company?

A company is the most easily understood and used entity. They are most often used to carry on a business. They are not the best form of entity for owning capital appreciating assets which are bought to be held long term as companies are not entitled to the general 50% capital gains tax discount available to individuals and trusts.

A company is “private” in that the directors may refuse to register a transfer of the company’s shares. The ownership within a private company is therefore restricted.

As a company is its own legal entity, it earns and derives income in its own right and pays its own income taxes, capital gains tax and goods and services tax (provided it makes taxable supplies).

Why incorporate a private company?

A company is its own legal entity – it is a legal person, capable of suing and being sued. For that reason, using a company can protect a person better than if the person traded – for example – as a sole trader, with personal responsibility for trade debts and damages claims.

What can a private company do?

A company can act as a trustee – of more than one trust – and can either trade in its own right or as a trustee of a trust. A company, if it makes a taxable income, can choose to either accumulate that income (at no tax penalty) or to distribute the income to its shareholders – either franked wholly or partially (that is with a tax credit).

If a company makes a loss, the losses do not flow through to the shareholders but are trapped within the company and are carried forward. These losses can then be used to offset against taxable income derived in later years.

The choice of any entity should be discussed with an appropriate and qualified professional.

How does it work?

Our standard company template document contains multiple different classes of shares – ordinary, dividend access, redeemable preference, capital only, income only etc. The share classes are designed to give maximum flexibility in relation to both the financing of the company through equity subscriptions and for things like the rewarding of key staff (through discretionary dividend access shares).

The constitution rules are broadly based on the replaceable rules with modifications.

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