Incorporation- Who? What? When(fore)? Where? Why?!

Incorporation (dun dun duuun)

It’s a scary word. For startups the moment you incorporate, with the $400-odd registration fee, you know that shit’s getting real.  Yet incorporation is much easier, and less intimidating, than you think.

 First of all we need to ask ourselves, what does incorporation mean?

Corporations are defined in Australia under the Federal Corporations Act (2001) which identifies two types of companies. The one we’re interested in is defined under clause 45A, “Propriety companies”. In creating a propriety company, what you have done is create a separate legal entity under the law whose dealings and expenses are demarcated from the affairs of the employees under, and within it.

So, let’s ask ourselves, why should you incorporate your business? The major advantage of incorporating your business is the limiting of your liability in its affairs. As a shareholder within the corporation you, should the company fall into debt, cannot be held responsible for all the finances of the company. In addition, the company, now regarded as a legal entity, can hold assets under its own name. Do you want to have an office under a company name? Do you want office stationary (oooo, stationary!)? Then you’re going to want to incorporate. It’s also important to note that corporations have a life outside of their founder(s). Corporations, as legal entities, continue to exist long after their founders are gone.

Furthermore, when looking at procuring investments, whether it be government grants, Angel investment or Venture Capitalist (VC) funding, incorporation aids in the perception of your company being professional and organised.

Now that we’ve had a little talk about why you would want to incorporate, let’s look at how you can go about completing this process.

The process of incorporating your company in Australia isn’t actually that difficult. It requires a bit of money but the forms itself are fairly straightforward. Incorporation, in Australia, is done through your local ASIC office where you hand in a funfilled 201 form (found athttp://www.asic.gov.au/asic/asic.nsf/asic+formsdisplayW?readform&code=201)

The 201 form, as ominous as it sounds, is quite straightforward. If you look online you will find a bevy of sites which will do this registration process for you, from $500-odd. That’s one option. I would advise against it in most cases because the 201 form, which is what you need to register, does not really have the difficulty to justify a $100-odd price tag.

The only real section that we found we had to really discuss and think about was the share structure. In the form it does not ask you for specifics of who has shares, and what type of shares, but merely how many shares the company will have in total for each type. For us, we found the easiest way to manage this was to have an initial release of 100 Founder (FOU) shares valued at $0.01 each. Apart from that, the only things really required in the form are your details (and the details of any other executive members), and the place which the business is operating out of.

Just remember, even though you don’t need to have the paperwork for appointment of directors and the purchase of shares at the point of registration this paperwork is important for your companies archives. Don’t worry about having these as “perfect” legal documents for now, it’s more important to take that first step and have something written down and acknowledged for the time being. These can, and should be, improved over time.

This is just a brief overview of the incorporation process. At the end of it you will hand in your form (and money) to ASIC and in return you’ll receive a shiny piece of paper proclaiming you a company and your ACN.

So, for all you startups out there who are on the cusp of incorporation but are scared to take that step remember that the process has been made to make it as easy as possible for you.

Until next time,
Anurag

to find out more, you can find more of my posts at: www.throwthelookingglass.com