How to Set Up a Company in Australia: Accounting and Tax Considerations

Welcome. If you’re thinking about starting a company in Australia, here’s something that surprises a lot of founders: registering the company itself takes less than an hour online. The hard part — and the part that really matters — is everything around that registration. The structure you choose, the tax elections you make, the compliance framework you put in place: those decisions have long-term consequences that are far harder to reverse. In this video, we’ll walk through the key accounting and tax considerations of setting up a company properly. I’m from the advisory team at Quantum House Australia, accountants and tax advisers.

Here’s our plan for the next quarter of an hour. We’ll start with why the decisions matter more than the click of registration. Then why you might — or might not — use a company structure, ASIC registration and the ongoing obligations, and the tax registrations you’ll need. We’ll get into the single biggest decision, your shareholder structure, then Division 7A and your accounting systems. After that, a worked example, the common pitfalls, the key takeaways, and how we can help.

Let’s start with why this matters. You can jump onto a website today and have a Pty Ltd registered before lunch. And that ease is genuinely great — Australia makes incorporation simple. But it can lull founders into thinking the setup is ‘done’ once the company exists. It isn’t. The registration is the easy, reversible part. The decisions that surround it — who owns the shares, how you’ll draw money, how you keep your records, which registrations you need — those are the ones that quietly shape your tax position for years, and they can be genuinely painful and expensive to unwind later. So the goal of this video is simple: help you get the foundations right the first time, before you start trading.

First, why use a company structure at all? A proprietary limited company — a Pty Ltd — is the most common structure for running a business in Australia, and for good reasons. It offers limited liability protection for shareholders, so your personal assets are generally separated from the business’s risks. It gives you access to the company tax rate, currently twenty-five per cent for what’s called a base rate entity — broadly, a company with aggregated turnover under fifty million dollars. It lets you split income through shareholder dividends. And it’s a separate legal identity, which makes selling the business or bringing in investment much cleaner. But — and this is important — a company isn’t always the optimal structure. Sole traders, partnerships and trusts each have distinct advantages, depending on the nature of your business, the number of owners, and the tax outcome you’re after. The structure should fit the situation, not the other way around.

Let’s talk registration and the obligations that come with it. To register through ASIC, you choose a company name, you appoint one or more directors — and every director must consent to act and hold a Director ID — and you lodge the application with a registered address, using a registered agent if required. So far, straightforward. But here’s what people forget: once the company exists, the obligations are ongoing. You must lodge an annual ASIC review. You must maintain a registered office and a principal place of business. You must keep your financial records for seven years. And you must keep up with any changes to the Corporations Act that affect you. These aren’t one-off, set-and-forget tasks — company compliance is a continuing responsibility, every single year.

Next, the tax registrations. A new company needs an Australian Business Number — an ABN — from the ATO. It also has an Australian Company Number, the ACN, which is issued automatically by ASIC when the company is incorporated, so that one takes care of itself. You’ll then need to register for GST if your expected turnover will exceed seventy-five thousand dollars a year. And depending on your circumstances, there may be more: PAYG withholding if you employ staff or pay certain contractors; payroll tax, which is state-based, once your wages exceed the relevant threshold; and Fringe Benefits Tax, if you provide fringe benefits to employees or directors. It’s worth mapping these out at the start, so nothing catches you by surprise once you’re trading.

Now to what I’d call the single most important decision at setup: your shareholder structure. Who owns the shares in your company determines two big things — how profits are distributed, and how any gain on a future sale of the business is taxed. And you’ve got real choices here. You can hold the shares directly, in your own name. You can hold them through a family trust. Or you can hold them through a holding company. Each of these has very different implications for income distribution, for capital gains tax — including access to the fifty per cent CGT discount and the small business CGT concessions — and for asset protection. Here’s the key message: getting this right at incorporation is dramatically easier, and cheaper, than restructuring later, because restructuring down the track typically triggers stamp duty and capital gains tax of its own. This is exactly the kind of decision where an hour of advice up front pays for itself many times over.

Here’s a trap that catches an enormous number of small company owners: Division 7A. Once your company is trading, there’s a natural temptation — especially if you’re the sole director and shareholder — to just draw money out of the company informally, as you need it. After all, it’s your company. But in the eyes of the tax law, the company is a separate entity, and its money isn’t simply yours to take. Under Division 7A, any payment, loan, or forgiven debt from a private company to a shareholder or their associate must be handled in one of three ways. It must be repaid within the same financial year. Or it must be put on a complying loan agreement at the ATO’s benchmark interest rate. Or it must be declared as a taxable dividend. Ignore this — as many owners unknowingly do — and the ATO can treat those amounts as unfranked dividends in a later year, with tax and interest attached. It’s entirely avoidable, but only if you set up a proper process from the start.

The final piece of the setup is your accounting system, and you want this in place from day one. A company needs proper bookkeeping — and for Australian SMEs, Xero is the most widely used cloud platform, strongly recommended for its real-time reporting, its BAS integration, and its large network of certified advisers. But the tool is only half of it. Set up your chart of accounts correctly from the outset. Separate your business and personal expenditure entirely — no dipping into the business account for personal things, and vice versa. And establish a habit of recording every transaction promptly. The alternative — trying to reconstruct a year of records from bank statements at tax time — is slow, stressful and expensive. Prevention is far more cost-effective than cure.

Let me make all of this concrete with a short, hypothetical example. Picture Priya, a founder launching a consulting business. Registering her Pty Ltd online took her about forty minutes, and she assumed that was ‘setting up the company’ done. Two things she didn’t think about came back to bite her. First, she held all the shares personally, in her own name, simply because it was the easiest option at the time. Second, as the sole director and shareholder, she drew money out of the company whenever she needed it, with no formal loan agreement. Three years later, two problems surfaced together. Those informal drawings had created a Division 7A issue — the ATO could treat them as unfranked dividends, with tax and interest on top. And when a buyer approached to acquire the business, her personal shareholding meant the sale was far less tax-effective than it could have been — and restructuring at that point would itself trigger stamp duty and capital gains tax. Now, here’s the thing: had Priya spent just one hour with an adviser at the very start — choosing her shareholding structure deliberately, and setting up a complying loan process — neither of those problems would ever have arisen. The registration really was the easy part. It was the decisions around it that mattered. Illustrative, of course — but it’s a pattern we see again and again.

It’s worth pausing on that pattern, because it captures the whole message. Setting up in haste tends to look like this: you take the default structure, you hold the shares without much thought, you draw money informally — and the problems surface years later, when unwinding them costs you capital gains tax, stamp duty and unexpected tax bills. Setting up deliberately looks different: your structure is chosen for where you’re heading, your systems are clean, your loan process is compliant from day one — and the foundations simply work, and keep working as you grow. Same company, same registration. The difference is entirely in the decisions made around it. And remember — the registration itself you could undo in minutes; those decisions can take years, and real money, to put right.

Let me gather the common pitfalls. The first is defaulting your structure — choosing a company, or a particular shareholding, out of habit rather than for your actual goals. The second is informal drawings — taking money out with no loan agreement, walking straight into Division 7A. The third is mixing personal and business finances — blurred records that are slow, costly and risky to untangle later. And the fourth is treating compliance as a one-off — forgetting that the annual ASIC review, the record-keeping, and the ongoing obligations don’t stop after incorporation. Every one of these is easy to avoid if it’s on your radar at the start.

So, to bring it together. The registration is easy — it’s the decisions around it that last. A Pty Ltd suits many businesses, but not every one, so choose deliberately. Get your tax registrations right: ABN, ACN, GST, and PAYG, payroll tax or FBT as they apply. Choose your shareholding structure thoughtfully at the start, because it’s expensive to change later. Steer well clear of Division 7A — never draw money out informally. And run clean accounting from day one, because reconstructing records later costs far more. Get the foundations right, and everything you build on them is stronger.

This is where Quantum House Australia comes in. We advise founders and entrepreneurs on exactly these decisions — your business structure, your tax registrations, your shareholding arrangements, and your accounting setup. We work with start-ups getting going for the first time, and with established businesses transitioning into a company structure — making sure the foundations are right before trading begins, not patched up afterwards. And because so much of this is part tax and part legal — shareholder agreements, trust deeds and company constitutions are all legal documents — we can draw on our colleagues at Australian Tax Experts, tax advisers and lawyers, to prepare them alongside the accounting. So you get the structure, the tax, and the legal documentation handled together, in one place.

So here’s the thought to leave you with: starting a company is genuinely exciting, and the registration takes minutes — but give the decisions around it the hour they deserve. Get the structure, the shareholding, and the systems right at the start, and you’ll save yourself a great deal of cost and stress down the track. Quantum House Australia helps founders set up properly, from day one. Visit quantumhouse-dot-com-dot-au, or call our Sydney office on one-three-hundred, eight-oh-nine, six-nine-seven. Thanks for watching — Quantum House Australia, accountants and tax advisers, setting a new standard.