As we touched on in our book, Ready to Launch? Becoming an Entrepreneur in Australia, there are a few options to form your company in Australia and there are various reasons you may want to incorporate. Over the last few months chatting with other founders and struggling through my first year of incorporation, I’ve discovered the key reasons you should incorporate as soon as possible. This is just my list, so be sure to seek input from your own advisors before making a decision for your business.
Are you doing R&D?
If so, incorporate immediately and save yourself the headache of accounting for expenses incurred prior to incorporation, as those do not technically qualify for the R&D tax credit. If you don’t know about this – drop everything and find out if you qualify – it could be worth 43.5% of your eligible spend. Especially critical for bootstrapping companies. Lots of service providers will offer to help you get the most from the credit (and take their cut) – but if you aren’t incorporated, it doesn’t count.
Are you worried about getting sued?
You probably should be a little worried, this isn’t the US, but there is still liability and while those friendly handshakes are crucial to getting started, it’s best to make sure they can’t take your house if things don’t go to plan. Being a company means you limit your personal liability – even as a Director of the company. Speak to a lawyer to understand the full extent of this, but generally speaking this is a worthwhile safeguard.
Do you plan to become a company at some point?
If you are operating as a sole trader now with an ABN that you invoice with, remember that when you incorporate you will get a new ABN. So all your accounting will switch to the new ABN – including your bank account. If you do this mid-year, it could be a pain doing taxes for both entities. So if you can incorporate pre-revenue, that is ideal.
Do you want to sponsor 457 visas?
To sponsor a 457 visa (or any other business sponsored visa) you need to apply to be a sponsoring company, then you can apply to sponsor your candidate. If you have been incorporated for less than 12 months, then the application process is a little bit harder (they are suspicious you’ve just created the company to import your cousin) and if you are approved it is only valid for the next 12 months. If you have been incorporated for more than 12 months then your successful application is valid for 3 years.
I’ve had a good experience with Australia Here We Come – but there are many service providers to help. It is getting harder to get visas recently, so be prepared to make a solid case and get good professional advice.
Will it look good to have been operating for a while?
I’m over a year into the process of building my business and it is a great thing to say to my clients – it shows them that I’m committed and not just showing up with a half-baked idea. While normally people will trust what you tell them about how long you are operating, they can also look you up at ASIC to confirm. Building legitimacy is hard, having an ASIC registration date is a small but important element.
Ready to Launch?
Once you’ve decided it’s the right time to incorporate, your accountant can take care of the nitty gritty of the process, or you can DIY like I did with a company like TopDocs or ClearDocs.