# Qualifications to run private investment company



## Investments2013 (11 August 2015)

Hi, I’m new to this forum.  
I have one question, if anyone knows the answer:
I plan to start a private investment company in 2017 with one friend.  Would someone please let me know whether I have to have a certain professional or academic qualification to manage such a company?  
Anyway my qualifications are: 
•	a BBus Economics, Finance, to be completed by the beginning of 2017
•	an Advanced Diploma of Accounting
•	managed own ASX portfolio for 10 years returning 21% on average in term of IRR
•	has helped a friend investing his capital with similar success
Thank you very much for any replies.


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## nulla nulla (11 August 2015)

Investments2013 said:


> Hi, I’m new to this forum.
> I have one question, if anyone knows the answer:
> I plan to start a private investment company in 2017 with one friend.  Would someone please let me know whether I have to have a certain professional or academic qualification to manage such a company?
> Anyway my qualifications are:
> ...




How can you claim to be new to this forum when you have been registered since September 2013?


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## Investments2013 (12 August 2015)

I registered then but only now started to use it.


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## prawn_86 (12 August 2015)

At the very least you would need an AFSL


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## The Falcon (12 August 2015)

You'd want to have CFA designation and a measurable track record working for a well known manager for some years in order to get any serious money I would have thought.


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## VSntchr (12 August 2015)

In order to get the best responses it might be better to outline your expectations.
I.e. is this private company intended for you and your friend and perhaps a few other family members/friends to do your investing within? 
or
is it more along the lines of - your wishing to attract multiple outside investors to invest within the company?


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## McLovin (12 August 2015)

VSntchr said:


> In order to get the best responses it might be better to outline your expectations.
> I.e. is this private company intended for you and your friend and perhaps a few other family members/friends to do your investing within?
> or
> is it more along the lines of - your wishing to attract multiple outside investors to invest within the company?




+1

When I read the OP I assumed he meant he and his friend were wanting to start their own private investment company without taking in outside investors.


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## christianrenel (12 August 2015)

McLovin said:


> +1
> 
> When I read the OP I assumed he meant he and his friend were wanting to start their own private investment company without taking in outside investors.




You will need a Australian Finaical Services License (AFSL)for starters. To get investors money you will need to show a track history of performance. 

You will find that you will need more money than you think to make variable fund, because you will be spend alot of money of compilance.

Kind Regards 

Christianrenel


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## Investments2013 (12 August 2015)

Investments2013 said:


> Hi, I’m new to this forum.
> I have one question, if anyone knows the answer:
> I plan to start a private investment company in 2017 with one friend.  Would someone please let me know whether I have to have a certain professional or academic qualification to manage such a company?
> Anyway my qualifications are:
> ...




=======================================================
Hi everyone,
Thank you so much for your answers so far.  I think I need to further clarify my questions because I think some of you are unclear about my idea.  
I mean to start a private company -- not a public one -- with my friend D.  Me and D will be the only shareholders of this company (though a private company can take 22).  We will be investing our own money and capital, and no more, in the ASX.  We will not, definitely not, be providing any third parties or the public with any services of any kind.  My positioning is that I do not need an AFSL.  
Our purpose in forming a private company is to provide us with a carrier for our investments and to limit tax liability.
I put the question to an expert today and I will let you know of the answer.  Thank you very much for your collaboration.


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## bellenuit (12 August 2015)

Investments2013 said:


> =======================================================
> Hi everyone,
> Thank you so much for your answers so far.  I think I need to further clarify my questions because I think some of you are unclear about my idea.
> I mean to start a private company -- not a public one -- with my friend D.  Me and D will be the only shareholders of this company (though a private company can take 22).  We will be investing our own money and capital, and no more, in the ASX.  We will not, definitely not, be providing any third parties or the public with any services of any kind.  My positioning is that I do not need an AFSL.
> ...




You shouldn't need anything as you are using your own capital and have no external shareholders. Many people on the ASF forums have set up private companies for share trading and other investment purposes (I have one) and the only obligations are those related to companies in general, not anything specific to your planned activities. Thus, you will need to set up a company (I bought a shelf company for about $900 and changed the name and shareholders to what I wanted). You will need to pay your annual ASIC fee (last year for my company was $243) and you will need to file a tax return. There are a few other administrative issues you will need to take care of.

I used an accountant for the first few years to do all the paper and tax work, but last year I felt sufficiently confident to do it all myself.


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## Investments2013 (12 August 2015)

bellenuit said:


> You shouldn't need anything as you are using your own capital and have no external shareholders. Many people on the ASF forums have set up private companies for share trading and other investment purposes (I have one) and the only obligations are those related to companies in general, not anything specific to your planned activities. Thus, you will need to set up a company (I bought a shelf company for about $900 and changed the name and shareholders to what I wanted). You will need to pay your annual ASIC fee (last year for my company was $243) and you will need to file a tax return. There are a few other administrative issues you will need to take care of.
> 
> I used an accountant for the first few years to do all the paper and tax work, but last year I felt sufficiently confident to do it all myself.




Thank you very much, mate.  That's exactly what I had in mind.  But I had to ask the question to be sure.  
Just two further questions, if you don't mind:  (a) you bought a shelf company for $900 and changed its name -- what do you think of these websites that offer to create a company for less than $500, online?  Would you recommend?
(b) What accounting software do you use and do you have any opinion about MYOB which has one particular model which is dedicated to share trading companies?
Thank you so much.


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## bellenuit (12 August 2015)

Investments2013 said:


> Thank you very much, mate.  That's exactly what I had in mind.  But I had to ask the question to be sure.
> Just two further questions, if you don't mind:  (a) you bought a shelf company for $900 and changed its name -- what do you think of these websites that offer to create a company for less than $500, online?  Would you recommend?
> (b) What accounting software do you use and do you have any opinion about MYOB which has one particular model which is dedicated to share trading companies?
> Thank you so much.




(a). I can't give an opinion on those as I haven't ever used them. My accountant was the one who arranged for me to buy the shelf company, and he did all the paperwork for me. I know others who have paid less, but I was new to the game and had to engage an accountant as I hadn't had one before. This was in 2000, so doing things like that on the internet wasn't prevalent then.

(b). I do everything on spreadsheets and before dropping my accountant, I just gave him summary information. There isn't much involved if you are just buying and selling shares. I did all the hack work to keep fees low (just told him the total of Sales, Purchases, Opening and Closing Stock etc.). My expenses just related to computer depreciation and office supplies, in addition to interest and other fees.

My company has no employees (just me as secretary, sole director and sole shareholder), so that saves some administrative issues.

I would ask your accountant what information he needs and then figure out the easiest way to provide it.  

Every year I refined my spreadsheet so that it is now at the stage when I do my last transaction of the year, I have  (save for a few minor calculations) a real-time year end view of the company accounts and all the information required to fill out my tax return by simple transcribing the figures to the paper based return.


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## skc (12 August 2015)

Investments2013 said:


> Our purpose in forming a private company is to provide us *with a carrier for our investments and to limit tax liability.
> *I put the question to an expert today and I will let you know of the answer.  Thank you very much for your collaboration.




Why do you need to set up an investment company?

If you are thinking long term investment... My understanding is that the 50% capital gains tax concession is NOT available to shares held in a company structure.

https://www.ato.gov.au/general/capi...l-gain-or-loss/working-out-your-capital-gain/

If you are doing short term trading... a company structure will mean a maximum tax rate of 30% (or lower next year). This may allow you to compound your trading returns more efficiently after tax, if you are in a marginal tax bracket >30%. But you need to think about how you would take the money out of the company into under your personal name. If you pay yourselves a dividend... you'd be paying effectively personal tax rates anyway. If this trading is your only income, then you will need to earn ~$180k each for your average tax to be 30%. 

If you just want to invest with a mate... you can always just start a joint broker account.


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## bellenuit (12 August 2015)

BTW, I assume you are familiar with some of the downsides of investing through a company structure. The obvious one is that you do not get the 50% discount for shares held longer than 12 months, unlike an individual. I personally use the company structure for short term trading, trying to profit from swings in share prices that usually happen over a few weeks to a few months, so these wouldn't qualify for the 50% discount anyway. I invest long term in my own name as an individual, thus being able to avail of the 50% discount. 

Also, you mentioned that you already have an ASX portfolio. If you have carry forward CGT losses, any CGT profits made by the company cannot be offset against your personal carry forward CGT losses. You and the company are two separate legal entities.

Sorry skc, I see you have already dealt with the first issue while I was replying.


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## bellenuit (12 August 2015)

skc said:


> But you need to think about how you would take the money out of the company into under your personal name. If you pay yourselves a dividend... you'd be paying effectively personal tax rates anyway. If this trading is your only income, then you will need to earn ~$180k each for your average tax to be 30%.




SKC, although that is true, if you are paying yourself a fully franked dividend, as far as I can see (correct me if I am wrong) you end up the same anyway.

For example, if you are an individual, and your only income is $100K from trading (not investing, so no cgt discount), your tax at the 2015 rates will be $24,947 (this is straight from the tax table and ignores medicare).

If you trade through the company instead and earn $100K, the company will pay $30K in tax (for simplicity I am ignoring the new rate for small companies). If you then pay yourself (the sole shareholder) the remaining $70K as a fully franked dividend, you as an individual will have a personal income of $100K (when the imputation credit is added back in) and thus have a tax bill of $24,947. But then you have the $30K credit so get a rebate of $5,053. 

So you end up exactly the same as to the amount of tax paid collectively by you and the company. As an individual you pay $24,947, but doing it through the company and paying profits as a fully franked dividend the company pays $30K, but you get back $5,053, thus $24,947.


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## skyQuake (12 August 2015)

bellenuit said:


> SKC, although that is true, if you are paying yourself a fully franked dividend, as far as I can see (correct me if I am wrong) you end up the same anyway.
> 
> For example, if you are an individual, and your only income is $100K from trading (not investing, so no cgt discount), your tax at the 2015 rates will be $24,947 (this is straight from the tax table and ignores medicare).
> 
> ...




As SKC said, if most of your income is from 1 source, it'll be classified as PSI income (and thus marginal tax rates) 
https://www.ato.gov.au/Business/Personal-services-income/


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## skc (12 August 2015)

bellenuit said:


> SKC, although that is true, if you are paying yourself a fully franked dividend, as far as I can see (correct me if I am wrong) you end up the same anyway.






skc said:


> But you need to think about how you would take the money out of the company into under your personal name. If you pay yourselves a dividend... *you'd be paying effectively personal tax rates anyway. *If this trading is your only income, then you will need to earn ~$180k each for your average tax to be 30%.




May be I didn't express this very well. But I think we are saying the same thing. i.e. If you are paying money out from the company as franked dividend it would have no difference in the taxes paid. In which case one should just save themselves the costs and hassles of setting up a company.



skyQuake said:


> As SKC said, if most of your income is from 1 source, it'll be classified as PSI income (and thus marginal tax rates)
> https://www.ato.gov.au/Business/Personal-services-income/




I don't know... My understanding is that trading involves variable results and therefore passes the "results test" and so it's not PSI.


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## Klogg (13 August 2015)

skc said:


> I don't know... My understanding is that trading involves variable results and therefore passes the "results test" and so it's not PSI.




The terminology the ATO use is odd. If 50% of income from a contract comes from your 'labour', it is labelled "PSI"; however, PSI rules may not apply, depending on the outcome of the remaining three tests.
As you've rightly pointed out, it passes the results test, the ATO state: _If you pass the results test, the PSI rules don't apply to the PSI you received. _

https://www.ato.gov.au/Business/Per...-if-the-PSI-rules-apply/Step-2--Results-test/



To the OP - a few points to consider and speak to a licensed professional about:
1) Unless you're making enough to cover the maintenance costs (ASIC registration, accounting fees, insurance [potentially]) and still come out in front with the tax structure, then keeping it in your name seems to be the best way. 
2) If you have a large pool of money to invest that will send you well over the $80k taxable income (i.e. after CGT discounts, etc.), then you may want to also ask your accountant about a unit trust.

I personally have a discretionary trust with a corporate trustee, but I don't have an investment partner, so my situation is a little different.


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