A Founder's Guide to the Australian Pty Ltd Company

Everything you need to know to set up, run, and stay compliant

Current as at FY 2025–26. Figures sourced from ASIC, ATO, and business.gov.au. General information only — this is not legal, tax, or financial advice. Get a registered tax agent and a startup lawyer involved before you lock in share structures or take in investors.

What a Pty Ltd actually is
The core features at a glance
Before you incorporate — decisions to make first
Step-by-step setup
Costs: setup and ongoing
Roles inside the company
Share structure basics
Getting money out: salary, dividends, loans
Tax obligations
Employee equity and the ESS start-up concession
The R&D Tax Incentive
Ongoing compliance calendar
Director duties — what you're actually signing up for
Shareholders' agreement: why you need one
Moving from sole trader to Pty Ltd
Common pitfalls founders walk into
Useful references

1. What a Pty Ltd actually is

A proprietary limited company is a separate legal person created under the Corporations Act 2001. "Proprietary" means privately held (as opposed to a public company), and "limited" means the liability of shareholders is limited to what they paid (or agreed to pay) for their shares.

Once registered with ASIC, the company:

Has its own Australian Company Number (ACN)
Owns its own assets and signs its own contracts
Sues and is sued in its own name
Pays its own tax at the company rate
Exists indefinitely, independently of its owners

The people involved fall into three roles that can (and often do) overlap in a startup:

Shareholders (members) own the company
Directors run the company and are legally responsible for it
Company secretary handles compliance (optional for a Pty Ltd, but some companies have one)

In a typical early-stage startup, the founders are all three.

2. The core features at a glance

Feature	Detail
Minimum directors	1 (must ordinarily reside in Australia)
Minimum shareholders	1
Maximum non-employee shareholders	50
Company secretary required?	No, but permitted
Australian resident officer required?	Yes — at least one director must ordinarily reside in Australia
Separate legal entity	Yes
Limited liability	Yes, for shareholders
Public disclosure of accounts	Only for large proprietary companies (more below)
Company tax rate 2025–26	25% (base rate entity) or 30%
Annual ASIC review fee	$329 (2025–26)
Can raise capital from investors	Yes — but not through a public offer
Perpetual existence	Yes

Small vs large proprietary companies

Pty Ltd companies are classified as either small or large proprietary, and this matters for reporting obligations. A company is large if it meets at least two of three tests (financial reporting, gross assets, and employee headcount). Large proprietaries have to prepare audited financial reports and lodge them with ASIC every year.

Virtually every Australian startup starts — and stays for years — as a small proprietary. You generally don't need to worry about the "large" classification until you're a serious scale-up. Your accountant will flag it when it's close.

3. Before you incorporate, decisions to make first

Rushing into ASIC's online form without thinking through these points is how founders end up restructuring six months later. Work through them first.

Company name

Check availability on ASIC Connect (organisation and business names search) and as a domain and social handle.
Also search the IP Australia trade mark register — ASIC availability does not mean you have trade mark rights.
If you want to trade under a different name from your company name (e.g. the company is "Northside Holdings Pty Ltd" but the product is "Glow"), you'll need to register the business name separately with ASIC.
You can also incorporate using just your ACN (e.g. "ACN 123 456 789 Pty Ltd") and register a business name separately. Some founders prefer this for flexibility.

Who the founders are and what they get

Agree up front:

Who holds what percentage of shares at incorporation
Whether founder shares will vest over time (very common — typically 4 years with a 1-year cliff) so that a founder who leaves early doesn't walk away with the full stake
Who is a director, and who is "just" a shareholder
How decisions get made (unanimous? majority? special decisions needing super-majority?)
What happens if a founder wants to leave, dies, or is bought out

These go in a shareholders' agreement — see section 14.

Share structure

How many shares total? (There's no "right" number, but issuing say 10,000,000 ordinary shares between founders is common because it leaves room to grant small, meaningful option grants to employees later without fractional shares.)
Will there be different share classes (e.g. ordinary and non-voting)?
Are you leaving an "option pool" of unissued shares for future employees?

Registered office and principal place of business

The registered office is where ASIC sends official mail. It can be your home, but it becomes public on the ASIC register. Many founders use their accountant's address as the registered office instead.
The principal place of business is where the company actually operates.

Who will be a director?

At least one director must ordinarily reside in Australia.
Every director needs a Director Identification Number (Director ID). Get this first — it must be obtained before being appointed, not after.
Directors take on real legal duties (section 13).

4. Step-by-step setup

Step 1: Get a Director ID for every prospective director

Apply at the Australian Business Registry Services (ABRS) website using myGovID. It's free. You only ever need one Director ID — it stays with you for life across every company you're ever a director of.

Step 2: Reserve or choose the company name

You can reserve a name with ASIC for a fee if you're not ready to incorporate yet, or just pick it at the moment of registration.

Step 3: Adopt a constitution (or rely on the replaceable rules)

Every Pty Ltd is governed either by:

the "replaceable rules" in the Corporations Act (the default), or
a constitution the company adopts.

For anything beyond a single-founder shell, adopt a proper constitution. Template constitutions are cheap through online legal services; a startup-ready one drafted by a lawyer is more expensive but usually worth it if you plan to raise capital or issue options. VCs will typically require amendments to your constitution at the time of an investment round anyway.

Step 4: Register the company with ASIC

You have two realistic paths:

Direct via ASIC: Use ASIC's online company registration service. Cheapest (just the ASIC fee), but you're responsible for getting every field right and preparing the consent forms.
Via a registered agent, accountant, or online service (Sleek, Lawpath, Sprintlaw, Cleardocs, Airtax, your accountant, etc.): They lodge for you, provide a constitution template, and handle the consent-to-act forms. Usually $500–$1,500 on top of the ASIC fee depending on the package.

You'll need to supply:

Proposed company name
Type (Pty Ltd, limited by shares, is the standard startup choice)
Registered office address and consent
Principal place of business
Details of each director (name, DOB, address, Director ID) and their consent to act
Details of each shareholder, the number of shares, share class, and amount paid per share
Whether the constitution is being adopted or replaceable rules apply

ASIC issues the ACN and a Certificate of Registration — usually within minutes for a straightforward online application.

Step 5: First board resolutions and initial housekeeping

Immediately after incorporation, the directors should pass resolutions covering things like:

Adopting the constitution
Issuing the initial shares to founders
Appointing the company secretary (if any)
Opening a bank account
Approving accounting software and record-keeping arrangements

You also need to set up:

A members' register (list of shareholders and their shares)
A directors' register
Minute book

Most online formation services provide these.

Step 6: Apply for TFN, ABN, GST and PAYG registrations

Go to the Australian Business Register (abr.gov.au). In one application, you can request:

TFN for the company (separate from yours)
ABN (required to do business properly and issue tax invoices)
GST registration (mandatory once you hit $75,000 turnover; often worth registering voluntarily earlier if you have significant GST-inclusive expenses)
PAYG Withholding (required if you'll pay salaries, including to founders)

All free. Usually issued within a few days, sometimes instantly.

Step 7: Open a business bank account

Keep business and personal money completely separate from day one. The major banks and neobanks (CommBank, NAB, Westpac, ANZ, Judo, Tyro, Airwallex, Wise Business) all offer business accounts. You'll need your Certificate of Registration, ACN/ABN, and the directors' ID.

Step 8: Set up accounting software and get an accountant

Xero dominates the Australian small business market; MYOB and QuickBooks are the other main options. Set this up before your first transaction. Give your accountant advisor-level access early — retrofitting a year of disorganised bookkeeping is painful and expensive.

5. Costs: setup and ongoing

Setup (typical ranges for a straightforward startup)

ASIC company registration: $611 (FY 2025–26)
Director ID: free
ABN / TFN / GST registration: free
Business name registration: nominal ASIC fee (approx $44 for 1 year or $102 for 3 years — check current ASIC schedule)
Constitution template (online service): $100–$400
Constitution drafted by startup lawyer: $1,500–$4,000+
Shareholders' agreement: $1,500–$5,000 (don't skimp on this)
Accountant setup fee: $500–$2,000

Ongoing (annual minimums for a small Pty Ltd)

ASIC annual review fee: $329 (FY 2025–26)
Accounting & tax compliance: $1,500–$5,000+ for a simple company; more with payroll, BAS, and complexity
Xero or equivalent: ~$40–$100/month
Business bank fees: $0–$20/month depending on provider

ASIC fees are indexed to CPI each July, so these numbers drift upwards a little each year.

Late fees matter

If you miss the ASIC annual review payment deadline (2 months from your review date), penalties apply — roughly $98 if you're up to 1 month late, around $411 if more than 1 month late. Set a recurring calendar reminder 3 weeks before the anniversary of your incorporation date.

6. Roles inside the company

Shareholders (members)

Own the company via their shares.
Vote on matters reserved for shareholders (e.g. changing the constitution, winding up, large transactions depending on the constitution and shareholders' agreement).
Are usually not involved in day-to-day decisions (that's the directors' job).
Limited in liability to the amount unpaid on their shares.

Directors

Manage the business and affairs of the company.
Owe a long list of duties to the company (section 13).
Are jointly and severally responsible for certain compliance obligations (tax, super, safety).
Must be at least 18 years old.
At least one director must ordinarily reside in Australia.
Can be removed by the members, subject to the constitution.

Company secretary (optional for a Pty Ltd)

If you appoint one, they're responsible for specific compliance lodgements.
Most small Pty Ltds don't appoint a secretary; a director covers it.

Public officer (tax, not ASIC)

A separate concept from the company secretary.
Required by the ATO — this is the person the ATO deals with on tax matters.
Usually one of the directors.
Must be appointed within 3 months of the company starting to carry on business in Australia.

7. Share structure basics

Ordinary shares

The default. Each carries:

One vote
A right to dividends (if and when declared)
A right to a proportional share of assets on winding up

Other share classes

You can issue non-voting shares, preference shares, or differently-rated share classes through a well-drafted constitution. Investors (especially VCs) will usually want preference shares with specific rights (liquidation preference, anti-dilution protection, board seats, investor consents). Don't invent share classes yourself — get a lawyer to draft them when the time comes.

Fully paid vs partly paid

You can issue partly paid shares where the shareholder only pays part of the issue price upfront and owes the rest. Limited liability is then capped at the amount unpaid. For simplicity, most startups issue fully paid shares and keep the price per share low at incorporation (e.g. $0.001 each) so founders don't need to hand over real money.

The option pool

It's normal to issue only a fraction of your total authorised or contemplated shares at incorporation, leaving room for:

Future investors
An employee option pool (typically 10–15% reserved for ESS)

The 50-shareholder cap

A Pty Ltd can have no more than 50 non-employee shareholders. Employees and former employees who received shares during their employment don't count. This cap is one reason companies eventually convert to a public unlisted (or listed) company when they've grown past a certain point.

8. Getting money out: salary, dividends, loans

This is where founders trip up most often. Once you have a company, you can no longer just "take money out of the business." There are three legitimate mechanisms:

Salary/director's fees

Treat yourself like an employee or director being paid for services.
The company must withhold PAYG tax from your pay and remit it to the ATO.
The company must pay Super Guarantee at 12% of ordinary time earnings (FY 2025–26) into your super fund.
Your salary is tax-deductible to the company.
You pay personal tax on it at your marginal rate.
Simple, clean, and generally the right default for founders actively working in the business.

Dividends

Paid from company profits (after tax) to shareholders.
If the company has paid tax, dividends can be franked — shareholders receive a franking credit for the tax already paid, avoiding double taxation.
A fully-franked dividend plus franking credit from a 25% tax-rate company effectively nets out against your personal tax rate, with top-up or refund depending on where you sit.
Can only be paid if the company can pass the "dividend test" (net assets and fair/reasonable tests).
More flexible in timing than a salary, but needs proper minutes and documentation.

Loans — and the Division 7A trap

If you take money out of the company that isn't a wage, director's fee, or properly declared dividend, the ATO treats it as a loan, and Division 7A kicks in. Unless you have a compliant loan agreement in writing that:

is in place by the company's tax return lodgement day,
has a maximum term of 7 years (25 for a secured property loan), and
charges interest at least at the Division 7A benchmark rate (8.37% for FY 2025–26),

The full amount is treated as an unfranked deemed dividend — assessable in your personal return at your marginal rate, with no franking credit. This catches first-time founders constantly. If you need money out, do it as salary or dividends, or set up a proper Division 7A loan agreement with your accountant.

Reimbursements

If you pay for a genuine company expense on a personal card, the company can reimburse you without triggering any of the above. Keep the receipts.

9. Tax obligations

Company income tax

Base rate entity (25%) if aggregated turnover is under $50 million AND 80% or less of income is from passive sources (interest, dividends, rent, royalties, capital gains).
Full rate (30%) for anyone who fails either test.
Eligibility is tested each year, not locked in.
Lodge a company tax return annually. Due dates vary; with a registered tax agent you typically get extensions.
Pay PAYG instalments quarterly once the ATO starts issuing them (usually from the second year of profitable trading).

Goods and Services Tax (GST)

10% on most sales of goods and services.
Compulsory registration once GST turnover hits $75,000 in a rolling 12-month period.
Voluntary registration below that threshold is often smart if you have meaningful GST-bearing expenses or want to look like a grown-up to corporate customers.
Lodge a Business Activity Statement (BAS) monthly, quarterly, or (rarely) annually — quarterly is most common.
Exports are generally GST-free, but the rules are fiddly — get advice if you sell internationally.

Pay As You Go (PAYG)

PAYG Withholding: the company withholds tax from employee (and founder) wages and remits to the ATO via the BAS or IAS.
PAYG Instalments: The company pays its own income tax in quarterly instalments towards its expected annual tax.

Single Touch Payroll (STP)

If you pay any employees (including founders on a salary), you report payroll to the ATO on or before payday through STP-enabled software. Xero, MYOB, and QuickBooks all handle it automatically.

Superannuation Guarantee

12% of ordinary time earnings in FY 2025–26.
Must be paid to each employee's chosen super fund by 28 days after each quarter ends.
Late super is not tax-deductible and attracts a Superannuation Guarantee Charge — one of the sharpest penalties in the tax system. Don't be late with super.

Fringe Benefits Tax (FBT)

Applies if the company gives non-cash benefits to employees (cars, gym memberships, entertainment, private health). FBT year runs 1 April – 31 March, and the rate is 47%. Get advice if you want to offer anything more creative than salary.

State payroll tax

Kicks in once your total Australian wages exceed your state's threshold. Rates and thresholds differ by state and territory, so check the relevant state revenue office (e.g. QRO in Queensland, Revenue NSW, SRO Victoria).

10. Employee equity and the ESS start-up concession

One of the strongest reasons to incorporate early as a Pty Ltd is access to Australia's ESS start-up concession — arguably the most generous tax concession in the country for employee equity.

Why the start-up concession matters

Without it, when an employee receives discounted shares or options, they can be taxed upfront on the "discount" to market value — before they've made a cent from the equity. That kills most early-stage ESS plans.

With the start-up concession:

There is no upfront tax for the employee on the discount.
The shares or options are taxed later under the capital gains tax regime when eventually sold.
If held more than 12 months, the 50% CGT discount generally applies — so at most 24.5% effective tax on the gain (for top-bracket individuals).

Business-level eligibility

Your company must, at the time of the ESS offer:

Be unlisted (not listed on any stock exchange, anywhere).
Be incorporated less than 10 years ago (tested across the whole group if there's a holding company).
Have aggregated turnover under $50 million in the most recent income year.
Be an Australian resident company for tax purposes.
Not be an investment vehicle (your main business must be something other than buying and selling shares or securities).

Virtually every genuine Australian startup qualifies in its early years.

Offer-level conditions

For shares:

The discount must not exceed 15% of market value (i.e. the employee pays at least 85% of market value).
If the company is older than 3 years, the plan must have been offered to at least 75% of permanent Australian employees with 3+ years' service.

For options/rights:

The exercise price must be at least equal to the current market value of an ordinary share.
No 75% offer requirement.

For both:

ESS interests must be ordinary shares (or options over ordinary shares).
A 3-year holding rule applies (or until employment ends, if earlier).
No individual employee can hold more than 10% of shares or voting rights (counting vested and unvested).

Shares vs options for startups

Most startup ESS plans use options, because:

The employee pays nothing upfront (they exercise and pay the exercise price later, usually at a liquidity event).
Options don't take up space under the 50-shareholder cap until exercised.
The 75%-of-employees rule doesn't apply to options.

Shares make more sense when the valuation is genuinely trivial, and you want employees to feel like co-owners from day one.

Valuation

The ATO publishes safe-harbour valuation methods (net tangible assets, market value methods) that early-stage startups can use to set a defensible share value. For very early-stage companies, this is often cents per share, making the "exercise price = market value" option rule very easy to satisfy. Get this documented properly at the time of each grant.

Documentation

At a minimum, you need:

An ESS plan rules document (often called the ESOP Plan)
Offer letters for each grant
A vesting schedule (4 years with a 1-year cliff is standard)
Board minutes approving each grant
ESS statements are issued annually to participants, and ESS data are reported to the ATO

The ATO publishes standard template documents for the start-up concession, but a lawyer-reviewed plan tailored to your shareholders' agreement is worth the spend.

11. The R&D Tax Incentive

If your startup does genuine R&D — experimental activities to develop new knowledge, with a systematic approach and technical uncertainty — the R&D Tax Incentive can be a meaningful cash injection.

Only companies can claim it (not sole traders, partnerships, or trusts).
For companies with aggregated turnover under $20 million, the incentive is a refundable tax offset — if you're in tax loss, you get cash back into the business.
The offset rate is the company's corporate tax rate plus a 18.5% premium for smaller companies.
Eligible activities must be registered with AusIndustry within 10 months of the end of the income year, and then claimed in the company tax return.
Spending must be on genuine core and supporting R&D activities — not just ordinary software development or business-as-usual work.

This is a specialist area. Many startups use an R&D tax consultant (the Big Four all have specialist teams, and many boutique firms exist) who charges a fixed fee or a percentage of the claim. Budget to spend 3–5% of the claim on advisory fees.

Watch out: the ATO and AusIndustry actively audit R&D claims, and aggressive claims involving normal product development have been disallowed. Document your hypotheses, experiments, and technical uncertainties contemporaneously — not retrospectively.

12. Ongoing compliance calendar

A small proprietary company's typical calendar:

When	What
Each payday	STP report to ATO
21st of each month (if monthly)	Monthly BAS/IAS lodgement
28 Apr, 28 Jul, 28 Oct, 28 Feb	Super Guarantee payment for prior quarter
28 Apr, 28 Jul, 28 Oct, 28 Feb	Quarterly BAS (if quarterly reporter)
28 Apr, 28 Jul, 28 Oct, 28 Feb	PAYG Instalments
14 July	Finalise STP for prior financial year
31 October	Individual tax returns due (without agent)
15 Jan / 15 May	Company tax return (with registered agent)
Anniversary of incorporation	ASIC annual review — check details, pass solvency resolution, pay fee
Each AGM/board meeting	Minutes and resolutions
Any change in officeholders, shareholders, address	Lodge Form 484 with ASIC within 28 days

A competent bookkeeper + registered tax agent will keep all of this on the rails. Don't try to run a Pty Ltd's compliance yourself unless you genuinely enjoy it.

Record-keeping

You must keep records (contracts, invoices, bank statements, payroll records, tax records) for at least 5 years under the tax rules, and 7 years is a safer default for company and corporate records.

Changes that must be notified to ASIC within 28 days

Change of registered office, principal place of business
Change of director, secretary, or their details
Changes to shareholdings (share issues, transfers)
Change of company name
Change of ultimate holding company

13. Director duties — what you're actually signing up for

Becoming a company director in Australia is not a ceremonial role. You take on personal legal duties under the Corporations Act, and breaches can trigger civil penalties, disqualification, or, in serious cases, criminal liability. The main duties:

Duty of care and diligence — exercise the care a reasonable director would.
Duty to act in good faith in the best interests of the company — not your own interests, and not a particular shareholder's.
Duty for a proper purpose — use your powers for the purposes they were given.
Duty to avoid conflicts of interest — disclose any material personal interests.
Duty not to improperly use position or information.
Duty to prevent insolvent trading — do not let the company take on debts it can't pay.

Director penalty notices

Directors can be personally liable for certain unpaid company debts — specifically PAYG withholding, Super Guarantee Charge, and GST — if the company doesn't pay them and doesn't lodge on time. Always lodge BAS and STP on time, even if you can't pay the full amount; lodging preserves your ability to avoid personal liability via a payment plan.

Safe Harbour

If the company is in financial distress, there's a safe harbour defence against insolvent trading if you're actively developing and pursuing a restructuring course that's likely to lead to a better outcome than immediate liquidation. Get professional restructuring advice early if things get tight.

Directors' and officers' insurance

Once you take external investment, the company will usually take out D&O insurance to protect directors against claims. Many VCs require it as part of the term sheet.

14. Shareholders' agreement: why you need one

The constitution governs the relationship between the company and its members in general. The shareholders' agreement governs what happens between the shareholders themselves — the human stuff.

A proper shareholders' agreement covers:

Founder vesting — if a founder leaves before the vesting period ends, what happens to their unvested shares?
Decision-making thresholds — what decisions need unanimous, majority, or super-majority approval?
Board composition and appointment — who gets to appoint directors?
Pre-emptive rights — if new shares are issued, existing shareholders get the first right to maintain their percentage.
Drag-along and tag-along rights — ensure minority shareholders can be dragged into a sale, and can also tag along if the majority sells.
Right of first refusal on share transfers — existing shareholders get first dibs before a founder can sell to a third party.
Good leaver / bad leaver provisions — different outcomes for a founder who leaves voluntarily vs one terminated for cause.
Deadlock resolution — what happens if 50/50 co-founders can't agree?
Dividend policy — when and how profits get distributed.
Exit provisions — IPO, trade sale, buyout mechanics.

This is the single most important document founders can have, and the one most often neglected. Get it done before things go wrong, not after. Budget $1,500–$5,000 for a proper lawyer-drafted agreement. It's cheap relative to the cost of a founder dispute without one.

15. Moving from sole trader to Pty Ltd

If you started as a sole trader and are now ready to incorporate, here's roughly what happens:

Incorporate the new Pty Ltd as described above.
Transfer the business — this means assigning customers, contracts, IP, employees, and assets from you personally to the company. Some contracts include assignment clauses that require the counterparty's consent.
CGT implications — transferring business assets to a company can be a CGT event. The small business restructure rollover under Subdivision 328-G can defer CGT on a genuine restructure, but you need to meet the conditions (genuine restructure, ultimate economic ownership preserved, among others). Don't do this without a tax adviser.
New ABN and GST registration — the new company needs its own. You cancel the old ones once the transition is complete.
Update customers and suppliers — new invoices, new bank details, new ABN on everything.
Update your website, email signatures, contracts, domain registrations, and payment processors.
Notify the ATO of the change via your sole trader tax return for the final year.

Ideally, time the restructure for the start of a financial year (1 July) to make bookkeeping clean.

16. Common pitfalls founders walk into

Missing the ASIC annual review deadline. Set a recurring calendar reminder. The late fees compound fast.
Not getting Director IDs before incorporation. You cannot be appointed without one.
Taking money out informally and triggering Division 7A. Pay yourself a salary and/or proper dividends.
No shareholders' agreement. Works until it doesn't.
Paying Super Guarantee late. It's the harshest penalty in the small business tax system.
Not registering for GST in time. The ATO can backdate your registration and require you to pay GST out of pocket on sales where you never collected it.
Mixing personal and business expenses. The ATO, a future investor, or an acquirer's due diligence team will all make you regret this.
Issuing share options without a proper ESS plan. You may lose access to the start-up concession, and your employees get a nasty tax surprise.
Not documenting board resolutions. Minutes matter — they're the evidence that directors acted properly.
Ignoring Div 7A benchmark interest rate updates. It changes every year — currently 8.37% for FY 2025–26.
Assuming the company's money is your money. It is not. It belongs to the company.
Forgetting that at least one director must ordinarily reside in Australia. Relevant if you're a non-resident founder.
Not updating ASIC within 28 days of a change to officers or shareholders.

17. Useful references

ASIC: asic.gov.au — company registration, annual reviews, forms and fees
ABR: abr.gov.au — ABN, TFN, GST applications
ABRS: abrs.gov.au — Director ID
ATO: ato.gov.au — tax rates, BAS, STP, ESS, R&D, Division 7A
business.gov.au — plain-English startup and compliance guidance
AusIndustry: business.gov.au/grants-and-programs/research-and-development-tax-incentive — R&D Tax Incentive registration
State revenue offices — payroll tax, stamp duty

This is a starting point, not a substitute for advice. Before you set up the company, have an hour-long conversation with a startup-experienced registered tax agent and another with a startup lawyer. Those two conversations — probably $500–$1,500 combined — will save you far more than they cost in the first year alone.