When expanding into a new market such as Australia, there are lots of things that you need to take into consideration. As well as marketing your business, finding the right employees to power your growth and spotting a gap in the country’s crowded market, you must choose the right company structure so that you can operate freely and without government restriction.
Below, we offer an introduction to Australia’s Proprietary Limited Company (PLC) business structure and share some of the biggest benefits of incorporating a firm as a Pty Ltd.
What is a Proprietary Limited Company (PLC) in Australia?
A Proprietary Limited Company (also known as a PLC) is an Australian business company structure that is most similar to a Limited Liability Company in the United States. It’s one of the most common company structures in Australia. Shares in the business are distributed amongst owners, or with up to fifty non-employee shareholders, meaning that the business structure is most commonly used by small and medium-sized businesses, as well as larger firms with one or a select handful of shareholders. Firms looking to get onto the Australian Stock Exchange or receive funding from many investors and shareholders should instead consider incorporating a Public Limited Company in Australia, affording more responsibilities.
Proprietary Limited Companies involve higher set-up and running costs than some other company structures and will require you to comply with the Corporations Act 2001. Unlike some company structures, PLCs are controlled by directors and owned by shareholders, and the two are not mutually exclusive. A company Director, for example, can have no or few shares in the company, whereas a Shareholder may have no day-to-day involvement in the running of the firm. Mony earned by the company belongs to the company, with employees and directors being paid salaries, and shareholders receiving dividends on their profits.
PLCs must register for goods and services tax if they generate more than AU$75,000 in goods and services revenue, whilst non-profit organizations need not register before turning over AU$150,000 in goods and services revenue. As always, working with a local lawyer and accounting firm will ensure your business plays by the books and is compliant. PLCs must lodge annual company tax returns with the Australian Taxation Office or face prosecution.
When incorporating a business in Australia, it is important to understand the country’s laws and regulations surrounding tax transparency. In many sectors and across many company entity types, income and taxation figures are made available to the public in the interest of transparency and reducing the likelihood of tax avoidance or corruption, but this can have a damaging impact on businesses that operate in a competitive/commercially sensitive niche.
One of the biggest advantages of Proprietary Limited Companies is that, under Chapter 6D of the Corporations Act 2001, the company must not disclose investors or shareholders. As an entrepreneur, this allows for greater levels of anonymity when operating a business.
On top of that, public disclosure in the country is also limited, which makes a PLCs or Pty Ltd firms more ‘private’. As regulatory burden is lower than it would be as a public company, you are able to conduct business freely and without the threat of competition stealing customers.
Of course, you must report to regulators and shareholders, but the information required is limited, allowing you to hold on to commercial secrets and the sensitivities of your firm.
Corporate Tax Rates in Australia
Small Proprietary Limited Companies pay a corporate tax of 27.5%, which is considerably lower than the highest tax rate for individuals, which currently stands at 49 percent at the highest bracket. Rather than incorporating in a partnership or as self-employed, conducting business through a PLC enables you to reduce your firm’s overall tax bill in Australia. On top of that, a PLC allows you to keep your business separate from your personal assets, which makes accounting and reporting to the Taxation Office much easier, especially if you are not resident in the country or you are conducting several commercial ventures in the country.
As PLCs are separate legal entities, companies are separated from their owners and, therefore, are not liable to pay their company’s debts. When you take into consideration that Australian businesses are able to carry their debts forward indefinitely, this can have a significant impact on your company’s cash flow and enable you to operate without profit in the first couple of years as you market and expand your business in the territory.
Branding and Appearance
Both startups and growing businesses with employees can incorporate as a PLC, allowing all businesses and entrepreneurs to create the impression that their firm is much bigger than it actually is. In addition, it’s most often the case that companies prefer to deal with other businesses rather than individuals and freelancers, as the company is its own legal entity with responsibilities, making networking and securing contracts much simpler in the long-run.
Unless wound up, a PLC can exist indefinitely, enabling you to sell or hand over the reins of the company should you choose to retire or resign from the organization. Not only does this provide additional reassurances to shareholders and company directors, but it offers more freedom and control and ensures that the company will live on, even if you exit from the firm.
Access to the Australian Market
Finally, operating a Public Limited Company in Australia allows you to take advantage of Australia’s large, mixed-market economy. With a 24.6 million population, annual population growth at 2% and a GDP per capita of US$53,799.94 as of 2019, the country offers some of the most diverse and lucrative market opportunities in the world, like the Australian mining industry which continues to see growth and foreign direct investment. In addition, operating in Australia allows you to take advantage of a range of free trade agreements, offering truly endless potential as a foreign investor, with access to Europe, Asia, and the Americas.
Trust Biz Latin Hub When Expanding
Although the incorporation of an Australian company is a straightforward process, seeking the guidance of an Australian business law expert makes sense. At Biz Latin Hub, we offer a wide range of back-office services designed to remove the headache of expanding into a new country, covering everything from recruitment to due diligence to commercial representation, and everything in between. We’ve helped businesses around the world make a successful entry into Australia, and we’d love to employ our wide-ranging skills and expertise onto your firm.
To find out more, contact the BizLatin Hub team today.