FAQ: Can I DIY My Company Set Up, To Save Myself Some Money?

In short…

Yes, you can set up your own company…BUT doing a Google search and asking around in a few Facebook groups is not going to equip you with everything you need to know to set your company up right. Having started a business from scratch, I appreciate that every dollar spent is precious and that you do what you can yourself to save money. DIY’ing your company set up is not something that I would recommend. Not knowing what you don’t know can be very costly and here is why.

What can go wrong?

We have registered many companies over the years and have helped many business owners who have struck trouble when a company has been set up incorrectly. Here is what we have seen go wrong:

1. Paying the fee to ASIC to register your company is not all you need to do

A company is not just the piece of paper from ASIC that says “Certificate of Registration”. There are a raft of documents that sits behind a Certificate of Registration, being:

Constitution: Every sole director/sole shareholder company MUST have a constitution. The constitution contains the rules that govern the company. Companies that don’t have a single director and a single shareholder that is the same person don’t need a constitution and can choose to be governed by replaceable rules, as set out in the Corporations Act. However a constitution provides a more flexible framework in which to operate your company and therefore that’s what we recommend.

Consents: When the form to register your company is lodged with ASIC you acknowledge that the director/s, secretary (if one is appointed) and shareholder/s have consented to take part in its operations. It is really easy to miss the significance of this when you are doing the registration online. Each director and shareholder needs to sign a simple letter acknowledging that they consent to their part, that forms part of the permanent company records, along with the constitution and other records discussed in further detail below.

Notice of appointment of Public Officer: The Public Officer is the person that is the company’s representative to the ATO and is often a company director. The ATO is notified of the Public Officer in the company’s ABN application, however they must first consent in writing.

Share Certificates: These prove who owns the shares in your company. If you go for a bank loan and you list your company as one of your assets then the bank will want a copy of the share certificate identifying you as the owner.

Company registers: Under the Corporations Act companies are required to keep registers of officeholders and shareholders. These records must be made available for inspection at either the registered office or the registered business address of the company.

Minutes of initial meeting: Records the resolutions of the director/s regarding the registration of the company, initial director/s shareholder/s, public officer, registered office, adoption of a constitution and opening of a bank account.

2. Asset protection hasn’t been properly considered

A company is a separate legal entity to that of its owners. That means that a shareholder’s liability is limited to the nominal value of their shares and that their other personal assets are not at risk should the company be unable to pay its debts. However for a director this is different. If a director has failed in their duties or they have failed to pay super on behalf of employees, GST or PAYG withholding then the director can become personally liable for the debts of the company. In situations where spouses are going into business together careful consideration needs to be given to the risks of the company and who will be the director/s and shareholder/s and what that means for the operation of the company and the ownership of any future assets outside of the company.

3. Shareholder being nominated as the beneficial owner, when in fact they are not and vice versa

The beneficial owner of the shares is the person or entity that gets the direct benefit of owning the shares. In cases where there is a trust that owns the shares then the trustee (either individuals or a company) is listed as the legal owner on the share register , however they are not the beneficial owner.

We have resolved a matter where the company was set up with two individuals as the beneficial owner, when in fact they had set up a discretionary trust (where they were the trustees) at the same time with the express purpose of being the shareholder of the company. The company had operated this way for several years and the issue had not been picked up until they became a client of Accounting Heart. The company had paid dividends to the trust during this time and unfortunately the most cost effective way to resolve this issue was for the company to pay $1,442 in fines to ASIC for not having notified them of the correct shareholder. Changes to shareholders need to be notified to ASIC within 28 days.

We have also recently discovered a company where the shareholder was listed as the non-beneficial owner, when they were the beneficial owner. Again a change beneficial status of shares is to be notified to ASIC within 28 days and this company will have significant fines to pay too.

4. Company registered as a Special Purpose Company and not as an ordinary Pty Ltd company

A special purpose company is a company created for a set reason and not general business. Examples of special purpose companies include:

• Super fund trustee

• Home unit company

• Not for profit company

The ASIC registration fee is much lower for special purpose companies than is for ordinary companies, as is the annual filing fee. The person setting up the company was enticed by the lower fee for a special purpose company and incorrectly chose that option at the time of registration. Again a change in details (with a 28 day notification period) had to be notified to ASIC and as the company had traded for several years the fines were significant.

5. A second company set up a few years after the first where the director, shareholder, registered office and business addresses didn’t match

In this case the owner of company 1 decided to set up company 2. Before setting up company 2 the shareholder (who was also the director) moved twice, only notifying ASIC of the change in business address for the first move. Company 2 was then registered with her latest address, meaning that ASIC had a real miss match of addresses for the same person. There is a 28 day time limit to notify ASIC of an address change before fines apply. When ASIC was finally notified there were separate fines for incorrect addresses for the director and shareholder as well as principal place of business and registered office multiplied by the number of years late.

While the ATO regularly remitts fines, ASIC never does.

It is for these reasons that I would never recommend that you scrimp on company set up fees if you are bootstrapping your company. Getting professional advice will save you money and your sanity in the long run.

If this blog post has raised any concerns for you contact your accountant or Accounting Heart.

If you would like specific advice tailored to your business and circumstances, Accounting Heart offers affordable service packages where you can work with Sonia one-on-one to help you get your business where you want it to be. Book your FREE Discovery Call to find out more.

Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.