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The Advantages & Disadvantages of Corporations in Australia

13/04/2023 by
The Marketing Team
In Australia, a corporation is a legal entity that is distinct from its owners, known as shareholders. It can own property, enter into contracts, sue and be sued, and conduct business operations in its own name. This Business Kitz article will provide an overview of what a corporation is in Australia, including its definition, characteristics, […]
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In Australia, a corporation is a legal entity that is distinct from its owners, known as shareholders. It can own property, enter into contracts, sue and be sued, and conduct business operations in its own name. This Business Kitz article will provide an overview of what a corporation is in Australia, including its definition, characteristics, advantages, and disadvantages.

What is the definition of a corporation in Australia?

According to the Australian Business Register, a corporation is a legal entity that is separate from its shareholders and has the legal capacity of an individual. A corporation can own assets, incur liabilities, and conduct business operations in its own name. Within Australia they are governed by the Corporations Act 2001, which sets out the rules and regulations for their formation, management, and dissolution.

What are the characteristics of a corporation?

There are several key characteristics of a corporation in Australia that distinguish it from other business structures. These include:

1. Limited Liability:

One of the primary advantages is that its shareholders have limited liability for the company's debts and obligations. This means that their personal assets are protected in the event of the company's insolvency or legal disputes.

2. Separate Legal Entity:

It is also a separate legal entity from its shareholders, which means that it can enter into contracts, sue and be sued, and own property in its own name. This separation also means that the company's debts and obligations are separate from those of its shareholders.

3. Perpetual Existence:

It also has a perpetual existence, which means that it can continue to exist even if its shareholders change or die. This makes it easier for corporations to raise capital, enter into long-term contracts, and conduct business operations over a sustained period.

4. Management Structure:

The board of directors manage it, who are appointed by the shareholders. The directors are responsible for making strategic decisions and overseeing the company's operations. Shareholders have the right to vote on important matters, such as the appointment of directors and major business decisions.

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Advantages

One of the main advantages is that it provides limited liability protection to its owners. This means that the owners are not personally liable for the debts and obligations of the corporation. Only the assets of the corporation can be used to pay off its debts, not the personal assets of the owners. This can be especially important for businesses that operate in high-risk industries or that are involved in potentially risky activities.

Another benefit is that it can raise capital by issuing shares to investors. This can be done through an initial public offering (IPO) or by issuing shares privately to investors. This allows corporations to raise large amounts of capital quickly and easily, which can be used to fund growth and expansion.

Disadvantages

One of the main disadvantages is that it is subject to more regulatory requirements than other business structures. For example, it must comply with the Corporations Act 2001, which sets out the legal requirements. This can include requirements for financial reporting, shareholder meetings, and the appointment of directors and officers.

Another disadvantage is that it can be more expensive to set up and maintain than other business structures. This is because corporations are subject to more regulatory requirements and may require more professional services, such as legal and accounting advice.

How does a corporation differ from other business structures?

A corporation differs from other business structures, such as sole proprietorships and partnerships, in several ways. One of the main differences is that a corporation is a separate legal entity from its owners, whereas a sole proprietorship or partnership is not. This means that the owners of a corporation are not personally liable for the debts and obligations.

Another difference is that a corporation can raise capital by issuing shares to investors, whereas a sole proprietorship or partnership must rely on personal savings or loans to fund growth and expansion. Additionally, it is subject to more regulatory requirements than other business structures, which can make it more complex and expensive to set up and maintain.

Conclusion

In conclusion, a corporation is a type of business structure that is recognized as a separate legal entity from its owners. It provides limited liability protection to its owners and can raise capital by issuing shares to investors. However, it is subject to more regulatory requirements than other business structures and can be more expensive to set up and maintain. It is important for business owners to carefully consider the advantages and disadvantages of a corporation before deciding on the best business structure for their needs.

Legal advice

Managing a business can be tricky and exhausting, but we are here to make it easier. Check out our Business Kitz Subscription Service today to access our full range of legal, commercial and employment documents to begin your business with a solid foundation that ensures compliance. If you are unsure about how to best protect yourself and your future business, our sister company, Legal Kitz can assist you. Additionally, you can request a FREE consultation with one of their highly experienced solicitors here today, or contact them at info@legalkitz.com.au or 1300 988 954.

About
The Marketing Team
Business Kitz Marketing team are experts in their field. You can expect the best business guides and updates on employment law here.
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