The private company, or Pty Ltd, is a separate legal entity.  It has rights and obligations to much the same extent as a real person. It can sue and be sued, enter into contracts in it’s own name and borrow money in it’s own name. In practice though, the directors of the company manage the company, a company can’t manage itself, and the shareholders own the company. Generally the directors and shareholders are the same person, and so the people effectively own and control the company as if it was their own. It must be kept in mind, however, that a company is a separate entity and the assets and income of the company are it’s own until they are distributed to the shareholders by dividend. Failure to appreciate this separate existence can be expensive on the tax side as there are many tax laws that deal with keeping the company and directors/shareholders separate.

A company is an ideal structure to run a business, especially if that business is likely to be sold in the future. The basic tax benefit of a company is that tax is limited at 30%.  As a company is a separate entity it can employ the owners and there can be some substantial tax benefits of being an employee of your own company, such as a company car.

A company provides a good level of asset protection. If the company is sued, the shareholders are not liable. The company directors are also not liable unless they were acting dishonestly or incompetently. From our experience for most small businesses and investors, a company is most suitable to acting as a trustee of a trust. Tax issues are generally much simpler and asset protection is enhanced.

We are able to run through the pros and cons of a company and, if required, setup one for you and assist with the tax, accounting and compliance work.