How does a Propiretary Limited Company protect its members
Structuring your new company is a complex issue and one that you should spend time with the appropriate parties to make sure you get it set right from the beginning. Here you can read about some of the aspects of what the protection of a Limited Liability company will offer you.
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When starting your new company. It is important to have an understanding of whether or not you are going to want to sell shares to stock holders and what is their protection.
In Australia being incorporated is called being a proprietary company. This is actually considered a corporation and there are some limitations to having this kind of corporation. One of these limitations is you can not have more than 50 shareholders in the company. This means you have to be careful who you sell shares to so that you do not go over this limit.
Another limitation is the fact that the shares can not be offered to the public, but must sometimes use a prospectus to raise funds. There are other restrictions that a Pty. Ltd. corporation must adhere to as well; Again seek advice from a Lawyer or skilled accountant in corporate law before moving forward.
Stockholders like to invest into companies this way because they can easily put in a little money and experience great growth. You might be interested in incorporating your company because you can easily get a great amount of money invested into your company that you can use as capital to make more money off the company.
To leverage your company if you have projects coming up and to bring in a lot more income a company structure will definitely entice more savy investors.
One important part of being an incorporated company is that you have to sell shares (you can be the sole share holder as well though). There are always positives and negatives to situations so make sure you become familiar with these. When you sell shares you can in fact lose your interest in the company. Meaning if you don't hold over 51% of the shares you can actually be out voted when big decisions are being made. If you want to maintain control over the company make sure you structure the share holding in the correct fashion to protect against the situation of being voted against on major decisions.
One of the benefits of the company structure is that stock holders and yourself have less liability. This offers greater peace of mind for potential investors. Generally the most you stand to loose in a limited corporation is your initial investment due to the liability that has been structured into the company.
This means if you start out by investing into the company with 1.If your company grows from say $500,000 to $2 million dollars and the company goes into receivership and files for bankruptcy you will loose at that is invested. If you in fact cash out before the bankruptcy then you would get close to $6 million (minus any taxes, of course). Still though you only invested the 1.5 million so that is all you are considered to have lost.
Your personal protection in a Company in Australia will be determined by how much you invested in the company. In most cases this is all you can lose by investing in the company, and you will not have to worry about any of your personal assets if the company goes south. You should always seek council from experts to make sure you are setting up your structure the right way.
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