Understanding the differences between a proprietary company and a small unlisted public company

Under Australian law, there are two main categories of companies – proprietary (or private) companies and public companies. Most small and medium businesses will choose to register as a proprietary company. However, as proprietary companies are restricted to a maximum of 50 shareholders, sometimes a small unlisted public company may be a better fit.

How are they classified?

Proprietary companies are defined as either large or small. Large proprietary companies have more obligations. A company is large if it meets at least two out of these three tests:

1. Consolidated revenue: Your gross revenue is equal to or more than $25 million.
2. Asset value: Your gross assets are equal to more than $12.5 million.
3. Employees: Your company employs 50 or more employees at the end of the financial year.

If you don’t meet at least three of these tests, then you’re a small company.

Public companies can also be listed (on the ASX) or unlisted. Proprietary companies are always unlisted.

If you’re already running a business and the type of structure no longer suits, you can change your company type. Only some types of conversion are possible, and ASIC recommends that you seek legal advice before doing this. To help you make that decision, here’s our guide to the differences between a proprietary company vs public company.

1.  Executive and shareholder limits

Proprietary companies

Proprietary companies must have at least one shareholder but no more than 50 non-employee shareholders. These are the company owners. It must have at least one director. While it’s not necessary, you may also choose to have a company secretary. While there must be a registered office, the proprietary company doesn’t have to open it to the public.

Public companies

A public company must also have at least one shareholder, but there’s no upper limit to how many shareholders it can have. It’s common for a company to shift from being proprietary to public because it has more than 50 shareholders. Most companies choose to become a small unlisted public company in that situation.

A public company must have at least three directors, two of which must be ordinarily resident in Australia. It also needs at least one company secretary and a registered office that is available to the public during certain hours.

2. Ability to raise capital

One of the major differences between a proprietary company and a public company is their ability to raise revenue. It’s important to be clear on the distinction if you’re deciding between a proprietary company vs a public company, as your choice will determine how you fund your business going forward.

Proprietary companies

A proprietary company can’t do any fundraising activities that need a prospectus. They can only offer their own shares to existing shareholders or their employees. Usually, proprietary companies raise money by accessing credit from financial institutions or are funded by their directors.

The directors of a proprietary company may refuse to register a transfer of shares in the company for any reason. This is why proprietary companies are also known as private companies, and one of the reasons why families often choose this structure – it allows them to keep control over the company’s ownership.

Public companies

Any public company, whether listed or unlisted, can raise capital by issuing shares to the public. The Corporations Act 2001 does have a number of disclosure requirements that must be made to investors when the company is fundraising. Typically, these are included in a prospectus. As disclosure documents need to be lodged with ASIC, it’s strongly advised that you get professional assistance in preparing them.

3. Disclosure requirements

Both proprietary and public companies are regulated by ASIC, although public unlisted companies may also be regulated by APRA if they’re in the financial services industry or related industries.

The level of disclosure a company has to make to ASIC depends on whether it’s a proprietary company or public company and the size of the company. Because public companies can raise funds from the public, their disclosure requirements are more stringent.

Proprietary companies

A large proprietary company must lodge financial statements, an annual director’s report and audited accounts with ASIC unless it has an exemption. Some small proprietary companies may also need to do so but are more likely to be exempt.

Public companies

Public companies of every size must also disclose their financial statements, directors’ report and audited accounts. They must also:

• provide those reports to their shareholders
• make their constitution available to their shareholders
• hold an Annual General Meeting
• maintain a share register

If the public company is listed, they must also give their shareholders 28 days notice of their AGM and make their remuneration report available.

4. Liability

The structure of your company will determine the liability of your shareholders.

Proprietary companies

Proprietary companies are either limited by shares or by unlimited share capital. The former means that shareholders are only liable for the nominal value of their shares, while the latter means that there is no limit placed on their liability.

Public companies

Public companies vary in the extent of their liability depending on which of these four forms the company takes:

1. Public companies limited by shares: Shareholders are only liable for the nominal value of their shares.
2. Public companies limited by guarantee: Shareholders are limited by a specific amount that they are willing to contribute if the company is wound up.
3. Unlimited public companies with a share capital: Shareholders’ liability is not limited.
4. No liability public companies: This applies only to mining companies who meet certain benchmarks.

Most small proprietary companies are limited by shares and will have ‘Ltd’ after their business name to indicate their status.

If you need help deciding between a proprietary or public unlisted company type, get in touch with CCASA. We specialise in company compliance and will be able to advise you on the best approach for your business.

This information is general in nature and we recommend that you seek legal and/or accounting advice to make the best decisions for your business.