Accounting Business Reporting for Decision Making

CHAPTER 3 Business structures 97

The main types of company are:

• proprietary companies


• companies limited by shares


• companies limited by guarantee


• no-liability companies


• unlimited companies.

Forming a company

Forming a company is more complicated than forming a sole trader business or partnership. Several

steps are required to create a company. First, the individual must apply to the Australian Securities and

Investments Commission (ASIC) for registration of the company, and must register every person who

agrees to be a shareholder, director or company secretary.

Once the company is registered, ASIC will allocate a unique Australian Company Number (ACN).

The ACN is a nine-digit number allocated to companies to ensure that they have adequate identification

when transacting business. Companies will also register for an ABN. An ABN is an eleven-digit number

allocated to companies by the ATO that assists companies with transactions involving taxes such as GST

and fringe benefits tax (FBT).

Most companies follow the jurisdiction of the Corporations Act 2001, which outlines the procedures,

and accounting and reporting requirements for companies. Under this Act, companies must prepare

financial statements in accordance with accounting standards, and the statements must be audited by an

independent auditor and then lodged with ASIC.

Certain companies also require some form of licence or permit to operate legally in a Commonwealth,

state, territory or local government jurisdiction. Because of the company’s limited liability status, com-

pany owners must comply with certain formalities and submit additional paperwork to maintain this

status. Companies must lodge an annual company tax return to report income and deductions for the

period and the income tax that they are required to pay. The current tax rate for Australian companies is

30 per cent.

3.7 Types of companies

LEARNING OBJECTIVE 3.7 Identify the different types of companies and provide examples of each.

Table 3.1 lists the various types of company structure in Australia and their characteristics.

TA BLE  3.1 Company structures in Australia

Type Characteristics

Proprietary companies Limited by shares

Public companies Limited by shares

Limited by guarantee

No-liability company

Unlimited company

Proprietary companies and SMEs

Proprietary companies, also known as private companies, are a common form of business structure

adopted by small and medium-sized entities (SMEs) in Australia. An SME is defined by the Inter-

national Accounting Standards Board (IASB) as ‘an entity that does not have public accountability and

does not need to publish general purpose financial reports for external users’ (para 1.2, IASB 2009). The

SME is the most common classification of a business entity in Australia and is the fastest growing sector.