In Australia, there are two main categories of companies – private (proprietary) (Pty Ltd) companies and public (Ltd) companies with private companies being the most common. The key difference between proprietary companies and public companies are the following:
- In terms of ownership structure, private companies are owned by a small group of individuals or a single entity, and their shares are not publicly traded. Ownership is typically closely held, allowing for greater control and decision-making within a small group. This structure often leads to streamlined operations and a cohesive management approach. Unlisted public companies, while privately owned like private companies, differ in that they may have a larger number of shareholders. Despite not being listed on stock exchanges, these companies can attract investments from a broader pool, blending the characteristics of private ownership with a wider shareholder base. However, their shares remain unavailable for public trading, distinguishing them from both private companies and listed public companies.
- In terms of capital acquisition, private companies usually rely on personal funds, loans, or investments from a select group, such as angel investors or venture capitalists. This process is more selective and slower but helps maintain control and privacy. However, private companies have limited ability to raise large amounts of capital compared to public companies due to the lack of publicly traded shares. Unlisted public companies have more diverse options for raising capital. While they are still privately owned, they can attract investments from a larger pool of private investors, without the regulatory requirements of being publicly listed. Although they lack the vast capital access of publicly listed companies, unlisted public companies can still secure substantial funding through private placements.
- Regarding exit strategies, private companies typically achieve liquidity through business sales, mergers, or transfers within a family. Liquidity events are rare and often require careful planning. In contrast, shareholders in unlisted public companies have more options for liquidity, such as private share sales or forming strategic partnerships. Although these companies are not publicly listed, their larger shareholder base offers more opportunities for liquidity and flexibility in realizing investment value.
While both public and proprietary companies are regulated by ASIC, the level of disclosure a company has to make to ASIC varies depending on their company type. Most small to medium proprietary companies will not be required to lodge financial reports with ASIC but all public companies (unless otherwise exempt) must disclose financial statements, directors’ reports and audited accounts on an annual basis. They must also hold an Annual General Meeting.
Most small and medium businesses will choose to register as a proprietary company limited by shares; however, they are restricted to a maximum of 50 shareholders, so sometimes a small unlisted public company is a better fit.
