Many throw around the terms business and company as if they were the same thing. However, there is quite a difference between the two structures. Confusing these terms may create problems for legal documents or conversations if one refers to their company as a business or vice versa. Once you learn the differences between these two structures, you may be able to make an informed decision as to whether or not you would like your business to stay a businessor register it as a company.
What is a Business?
A business is not a legal entity and therefore, cannot be treated as such. A business allows you to earn money but it does not have to be incorporated. As a business, you must report your earnings and pay tax on them under your personal taxes. Since your business is not its own separate entity, if your business fails, your personal assets are at risk. You must register your business name with the territory or state that you plan to work under – unless your business name is your first name or initial and surname that is used. No matter how similar your business may be to a company, the business will never receive the same benefits that a company is entitled to, such as limited liability and a fixed corporate tax rate.
What is a Company?
A company is its own entity completely separate from its directors, members, owners, etc. This means that a company can be sued and sue as an individual can, enter into contracts on its own behalf, and own property and assets as an individual can. A company will have its own income tax liability so that you will never be personally responsible for the financial state of the company.
Registering as a Company
To register as a proprietary company, the company needs at minimum one shareholder and can have a maximum of 50 share holders who are not working for the company. Shares cannot be sold to the public but shares can be given to employees of the company, to subsidiaries of the company or to existing shareholders.
A Public Company Versus a Proprietary Company
Besides the share holders, there are other differences between a public and proprietary company. The latter only requires one director to permanently reside in Australia whereas a public company requires three directors, two of which that live in Australia.
Small businesses often prefer to become proprietary limited companies rather than public companies. They can label themselves as a small company and benefit from the privileges that a company has over being a business.