Entrepreneur

ABN vs ACN: What Is the Difference Between ABN and ACN

Setting up a business is an exciting endeavour, no doubt. You get to chase your dreams and watch your vision come to life. It’s the perfect opportunity to make a difference in the world and create a legacy that stands the test of time.

But, this journey can potentially turn into a never-ending nightmare if you venture-in unprepared. That’s precisely why you need to do your homework beforehand, and figure out everything you need to get started, to avoid any hiccups along the way.

Once you’ve decided on your business structure, name, and location, and developed an airtight business plan, you’re now ready to register your business. Before you do, you’ll need to apply for an ABN or ACN depending on the business entity you want to form.

The question is: ABN vs ACN – What’s the difference? And, which one should you get? This article explores everything you need to know about them.

ABN vs ACN

Both are unique codes issued by the Australian authorities to any new business or company registered in the country. The difference lies in the type of entity and the issuing authority. Let’s look at both in detail.

What Is an ABN

ABN is short for Australian Business Number. It is a unique 11-digit number that every business in the country has to get. This number is issued by the Australian Taxation Office (ATO) as a way not only to identify the business in question but for all commercial dealings and transactions, the company will have with the Authority.

ABNs are issued to all businesses regardless of their size or structure. So, whether you plan to register a company, partnership, trust, or sole trade, you’ll need to apply for the number.

If you don’t, then you’ll essentially be trading illegally. Besides, it is the only way you’ll be able to register for Goods and Services Tax (GST) and Payroll Tax.

What Is an ACN

ACN is short for Australian Company Number and is a unique 9-digit code issued by the Australian Securities and Investments Commission (ASIC). It is issued specifically to businesses registered as companies.

The ASIC uses this number to monitor a company’s transactions and any other related activities. It also lets the public know the legal structure of the entity they’re dealing with.

Keep in mind that company structures are generally treated as separate legal entities. So, if for any reason, a company runs into legal or financial trouble, the directors of the company in question will not normally be held responsible for it.

Why Are ABNs and ACNs Important for Business Entities

Sometimes, there is confusion between the two codes. The ATO uses the ACN as the basis of issuing a company with an ABN. So, the ABN usually has a 2-digit prefix followed by the nine digits of the company’s ABN.

Not having these codes means that you’ll essentially be in breach of the country’s tax and company laws. So, you need to have them to be considered compliant.

ABN/ACN and Debt Recovery

These codes also come in handy when dealing with clients. It lets you know who you’re doing business with – which is particularly useful during debt collection. Here’s why.

Many businesses have similar names. So, the only way to differentiate between them would be to get their respective ABN/ACN. Otherwise, there’s no way to know for sure who owes you money.

Say, for instance, that ABC Pty Ltd. engages a debt collection company to recover overdue invoices from the debtor – Slater G Australia Pty Ltd. The company is considered to be in good standing and generates annual turnovers that exceed $1 million.

When the debt collector contacts the debtor, they are informed that it is, in fact, Slater G2 Australia Pty Ltd. that owes the funds, even though both companies have the same directors.

But, here’s where the problem lies.

Slater G2 Australia Pty Ltd. is a much smaller company which, as it turns out, is now in liquidation. Although ABC Pty. Ltd. is listed as a creditor, and there’s no proof that any specific entity incurred the debt in question, the company (ABC Pty.) will likely not get paid.

This is why it is important to get an ABN/ACN from any entity you transact with to avoid similar scenarios. To validate the code, search for it on the Australian Business Register (ABR) website.

If, on the other hand, you want more information on the company, use the ASIC Connect resource to get details like the:

  • Registration date
  • Registration status
  • Documents that ASIC has on it
  • Directors
  • Shareholders
  • Business address

How to Register an ABN

To apply for an ABN for your business, partnership, company, sole trade, or trust, you’ll need to do it through the ABR. Here’s what you’ll need.

  • ACN if your business is a company
  • Associates’ details
  • Authorized contacts
  • Business activity
  • Business contact details
  • Business locations
  • Date when you require the ABN
  • Legal business name (register with the Business Registration Service)
  • Previously held ABN if you have one
  • Tax agent registration number
  • Your Tax File Number (TFN) and that of any associates, e.g. directors, partners, and trustees

You’ll then need to complete the online form on the ABR website, and wait for your application to be approved.

How to Register an ACN

To apply for an ACN, you first need to register a company. You can do it yourself through ASIC, or have an accountant or a lawyer help you. Here’s what you’ll need to do to get your ACN.

  • Establish if your company will be limited or unlimited
  • Establish the governance for your company based on the rules set out in the Corporations Act of 2001
  • Choose a company name with the words “Proprietary Limited” at the end of it. It can be abbreviated to Pty Ltd.
  • Select a state or territory of registration
  • Choose your business address
  • Choose the company’s officeholders and provide their details, i.e. directors and secretaries
  • Come up with the share structure
  • Choose the shareholders and get written consent from each of them

You’ll then need to fill Form 201 online via the ASIC website. Once your application is approved, the company will receive an ACN, which can then be used to apply for an ABN.

Line Your Ducks in a Row

Now that you understand when and why you need an ABN vs CAN, ensure that they are displayed on any documents your company publishes. You’ll also need to keep your business and company details up to date in the ABR database. Any changes you effect with the company’s ABN or CAN have to be updated within 28 days.

Remember, trading without these identifiers is illegal, and will land you on the wrong side of the law. So, get the relevant documents and lodge your application. The process is pretty straightforward.

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