Can I form a company with just one person?
Author: Rich Muir

Are you planning to operate a small business on your own?

There are two business structures that may be appropriate
for a small outfit like yours: a single proprietorship
(sole trader) or a registered company.

While you may consider setting up a single proprietorship,
the Corporations Act of 2001 does allow you to set up a
company with just one person to own and run everything.

If this is the way you want to go, then all you have to do
is indicate your choice in the ASIC registration
application as "a proprietary company with limited
liability".

You will be both the sole shareholder and the sole director
of your company.

Thus, your type of company is legally referred to as a sole
shareholder/director proprietary company.

You may wonder why anyone would choose to register as a
sole proprietary company rather than as a single
proprietorship.

Well, there are some real advantages to being registered as
a sole shareholder/director company. Some of the reasons
people choose a company over a proprietorship are:

* Legal personality of company.

Once a company is registered with the ASIC and an ACN has
been is issued, the company becomes a legal entity with a
personality that is independent and separate from its
shareholder.

This distinct personality has important legal effects: A
company can enter into contracts in its own name and it can
also sue, and be sued.

When a company is in debt, the money owed does not
automatically become the debt of the shareholder.

As a result, a civil lawsuit for the collection of a sum of
money against the company is not necessarily a legal action
against the shareholder.

This is because the liability of a shareholder is limited
to the value of his shareholdings unless he previously
signed a personal guarantee in favor of the one pursuing
legal action. This built-in limitation is not available in
single proprietorships or for sole traders.

So if you are conducting business by yourself, and you wish
to limit your business liability, then the sole shareholder
proprietary company is for you.

* Flexibility in ownership

If your business grows in the future and you wish to create
incentives for your non-shareholder employees who have
contributed to the success of your company, then a good way
is to increase their involvement by transferring shares in
the company to them.

This is also known as a stock option. Because of the
company's structure, you are able to accommodate additional
non-shareholder employees into the company shareholdings
without having to terminate the company's legal status.

* Continuity

Another advantage of the independent personality of the
company is that it may continue to exist for the duration
of its registration, notwithstanding changes in the
ownership of the company's shares.

The death or retirement of a shareholder or the sale,
transfer or assignment of the rights to a company's shares
will not mean the termination of a company's existence.

You may one day decide to hand over the reins of the
company to someone else, such as one of your experienced
managers or employee-shareholders. While the director may
be changed, the company continues to exist as its
registered self.

It is worthwhile speaking with a legal adviser or
accountant as to what is the best structure for yourself
and your business. Also different countries may have
different legislation on this so check locally as well.

It is possible to register a company online, but if this is
a daunting prospect for you, there are appointed
registered agents, who can advise and manage your online
company registration.


About the Author:

To discover how to register a company in Australia or for
more articles and information on company formation visit
http://www.companiesnow.com.au