Accounting  > Companies

What is a Private Company (Pty Ltd)? 

A company is a separate legal entity and is administrated by its directors. It is formed by people who own its shares and whose liability is limited to the amount (if any) unpaid on the shares respectively held by them.

Set up Procedures

  • Purchase a shelf company or establish a new company.
  • Register for ABN, Tax File No, GST (if applicable), and PAYG Withholding (if applicable)

Advantages

  • Limited Liability
  • Ability to dispose of the shares rather than the investment, reducing stamp duty and other costs.
  • Corporate tax rate lower than the top individual marginal rate.
  • Flexible in distribution of income, with some restrictions in case of Personal Services Income entities.
  • Imputation credits can be passed to shareholders.
  • Superannuation contributions deductible up to age base limits.
  • Excellent tax effective estate planning vehicle.

Disadvantages

  • Cost of establishing and maintaining is higher.
  • Director's potential liability in case of negligence or insolvent trading.
  • Superannuation contributions required on wages paid for directors.
  • Losses cannot be distributed to shareholders.
  • More compliance issues Accounting standards and ASIC.
  • Capital gains are not concessionally taxed.
  • Company loans to shareholders attract special Tax Office rules

Compliance Requirements

  • BAS - monthly or quarterly.
  • Tax Return - Yearly.
  • Financial records - financial accounts balance sheet and profit and loss in required format.
  • ASIC annual return and notification of changes in directors, share holding, place of business required.

Cost

  • Establishment Cost $1,650.00 inc GST.
  • Annual Maintenance $475.00 plus Tax Return and Accounting Fees
  • General Comments

The separate legal structure of a Company allows for continuity of a business through several generations. The lower Company tax rate coupled with refundable imputation credits allows for very flexible tax planning. Superannuation planning using age based limits makes retirement funding particularly easy and tax effective.

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