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Tom Cockle, Palmyra, WA
In Incorporator’s experience, this question is most often asked by sole traders living in Australia with established businesses who, for one reason or another, now wish to apply to ASIC (Australian Securities and Investments Commission) to register a ‘one person company?
(In fact, they often use even looser, but understandable, terminology like ‘I want to register myself as a company?)
The same question is also asked a lot by people who have never been sole traders but who are starting a business on their own (without any business partners) and who wish to register a company from the get go.
And what all these people really want to know is whether they can register a company with just themselves occupying every position (director, secretary, and shareholder) in the company.
Yes you can ...
The answer is yes.
A sole trader (or anybody else living in Australia for that matter including newbies) certainly can apply to ASIC to register a company with only himself or herself occupying every position in the company.
(And, by the way, the term ‘one person company?is not an official term - it’s just a good shorthand tag used to describe such a company.)
However, you can only register a ‘one person company?when the company you’re wanting to register is a Pty Ltd company - that is to say a private (‘proprietary? company (as opposed to a public company which needs to have at least three directors.)
This is almost never a problem as the overwhelming majority of companies registered in Australia are private (Pty Ltd) companies. It’s the garden variety type of company that nearly everybody (who wants a company) wants - though it should be noted in passing that only a portion of these Pty Ltd companies are of the ‘one person?variety we’re talking about in this article. Many other Pty Ltd companies have more than one person involved in their company structure.
Now let’s look a bit more closely at the concept of a ‘one person company?..
If you have a ‘one person company?it means that you (a human being) are the company’s sole (100%) shareholder (aka sole owner or sole ‘member? and the company’s sole director (the sole person whose responsibility it is to run the company).
In addition, in a ‘one person company?you can be the company’s sole company secretary if you want to be (though as a private company, it is not required to have a company secretary).
And both the company’s registered office and its principal place of business (subject of course to zoning laws) are permitted to be your home address in Australia.
But you are not the company and the company is not you ...
There is a most important principle to be fully mindful of when you register a ‘one person company?(or any company for that matter).
You are not the company and it is not you.
It is a separate legal entity with its own life, so to speak.
And this principle has many follow-on consequences. Let’s look at a few of the important ones.
An example of one of these consequences (a very important one) is that you are not permitted to take money from the company’s bank account as if it were your own money in your own personal account. All withdrawals need to be proper (lawful and reasonable).
The most common type of such a lawful, proper and reasonable withdrawal is a withdrawal to pay a legitimate expense of the company in running its business.
Another type of legitimate withdrawal from the company’s bank account (this time, not being an expense) is a dividend paid by the company to you as a shareholder (but the company may only pay you a dividend if it has genuinely made a profit - that is, the revenue of the company over the relevant accounting period has exceeded its legitimate expenses, thus leaving a surplus/profit).
And another common type of legitimate withdrawal from the company’s bank account would be a repayment to you of money which you as an individual had previously lent the company.
Yet another consequence of you not being the company, and the company not being you, is that the company may not use any pre-existing ABN which you may have.
Of course the structure of your ‘one person company?can change if it needs to ?/p>
Just because you decide to register a ‘one person company?today doesn’t mean that it always has to stay that way. For example, someone may come along and want to invest in the company so you decide to sell them some of the shares that, until that point, you held as the company’s sole shareholder, or even have the company issue them with brand new shares.That can be done. And you can add a director too if that suits. The point is that the structure of a ‘one person company?can change (even radically) as things evolve (just like any company’s structure can).
And please be mindful of the ATO’s PSI rules ...
A note of caution ?often when people create such one person companies, special tax laws known as the personal services income (‘PSI? rules kick in ?see this Australian Tax Office publication entitled ?a target="_blank">Personal services income for companies, partnerships and trusts?