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PROPRIETARY LIMITED COMPANY

A Proprietary (Private) Limited Company is a business structure where the liability of shareholders is limited to value of shares under Corporation Act 2001section 45A. It is unlisted and not allowed to raise capital that would required lodging a prospectus or offer information

PUBLIC COMPANY

Public Company is a corporation whose ownership is dispersed among the general public in many shares of stock stock which are freely traded on a stock exchange stock exchange or in over the counter markets. It can be Listed or Unlisted and can raise capital by offering a prospectus reporting to ASIC.

COMPARISON BETWEEN PROPRIETARY LIMITED COMPANY AND PUBLIC COMPANY:


 * 1) They are both separate legal entities distinct from its owners
 * 2) Both issue shares of stocks to its members/stockholders
 * 3) They are both registered under the Corporations Act
 * 4) Controlled by a board of directors
 * 5) Salary manager employed to manage the business
 * 6) Subject to corporate tax of 30% on profits earned

DIFFERENCE BETWEEN PROPRIETARY LIMITED COMPANY AND PUBLIC COMPANY

Number of shares:

Proprietary Limited Company has not permitted to have more than 50 non-employee shareholders.

Public company has no maximum number of members or stockholders

Fund raising:

Proprietary Limited Company is not allowed to undertake certain fund raising activities that require the issue of a prospectus

Public company can offer stocks to the general-public by issuing prospectus

Type of company:

Proprietary Limited Company must have at least one shareholder (must be at least 18 years old). and maximum of 50 non-employee shareholders. It has two type:

*Small: has gross assets less than $12.5 million. Operating revenue less than $25 million.

*Large: gross assets more than $12.5 million. Operating revenue more than $25 million.

Public Company must have minimum of one member but there is no maximum (must be at least 18 years old). There is four main type:

*Public company Limited by shares

* Public company Limited by guarantee

* Unlimited public company with share capital

* No Liability public company

Director:

Proprietary Limited Company must have at least one director and it is not required to have a company secretary

Public company must have at least three directors, and at least one company secretary

Right of company:

Proprietary Limited Company Can hold shares in listed company. It can offer shares to existing shareholders of the company or employees of the company or a subsidiary of a company but cannot issues share for outside business.

Public Company can own Proprietary Limited Company companies and there are no restrictions on transfer of shares or raising money by sale share or debenture to the public.

THE LEGAL AND REGULATORY REQUIREMENTS FOR ESTABLISHING AND MAINTAINING A PROPRIETARY LIMITED AND PUBLIC COMPANIES:

Nature of Company

Under the governing Corporations Act, a proprietary limited company are limited by shares: In this case, shareholders get more protection when it comes to the level of liability they face for company debts. This is the set-up most preferred by small businesses, hence around 99% of the companies are registered as a proprietary limited company. Since they are limited company they cannot issue shares to the public to raise the capital, however, it can offer its shares to existing shareholders of the company; or employees of the company or a subsidiary of the company.

On the other hand, legal and regulatory requirements for public companies are stringent so very less number of companies are registered as a public company. Only 1% of total companies in Australia are registered as public companies. They can be of various nature which are as follows:

Limited by shares, e.g. Commercial businesses Limited by guarantee, e.g. charities, not for profits, clubs Limited by both shares and guarantee, e.g. private schools, friendly societies g Unlimited, e.g. professional practices No liability which are only for mining companies

REGULATORY REQUIREMENTS:

PUBLIC COMPANY:

Corporations Act
 * 1) Public companies are required to lodge financial reports regardless of the size of the company’s operation: s 292 of the Corporations Act
 * 2) Special restrictions on transactions with related parties apply to public companies under Ch2E of the Corporations Act
 * 3) Public companies must have at least three directors while proprietary companies need only one: s 201A of the Corporations Act
 * 4) Public companies must have a secretary: s 204A of the Corporations Act
 * 5) The resignation of a public company’s auditor requires the consent of ASIC: s 329 of the Corporations Act
 * 6) Director’s report of a public company must contain statements about the qualifications of directors, their attendance at meetings of directors, their shareholdings or their contracts with the company: s 300(10) of the Corporations Act
 * 7) Special rules apply to the appointment of public company directors: s201E of the Corporations Act
 * 8) Restrictions apply to the removal of public company directors: s 203D and 203E of the Corporations Act
 * 9) Public companies must hold an AGM once a year no later than five months after the end of the company’s financial year. And same case is applied for listed public companies with a minimum of 28 days’ notice of the AGM to be provided.
 * 10) Public companies required to provide reports to members 21 days prior to AGM or four months after the end of the company’s financial year, whichever is earlier. Listed public companies required to lodge accounts with ASIC three months after the end of the company’s financial year.
 * 11) Both public companies and listed public companies are required to lodge a copy of the special resolution adopting, modifying or repealing its constitution, and if adopted, a copy of the constitution, and if modified, a copy of that modification

PROPRIETARY LIMITED COMPANY:


 * 1) For the registration of private limited company, we can directly lodge a paper form, either over the counter at an ASIC office, or by posting the form with a cheque where direct registration with ASIC means that we have to provide the corporate register documentation which must be compliant with the Corporations Act 2001.
 * 2) Private limited companies are also required to pay an annual fee on the anniversary date of registration.
 * 3) Small proprietary companies do not require to be audited or file financial statements or a directors’ report.
 * 4) Members holding five per cent or more of the votes, or ASIC, can require a financial and directors’ report for a financial year and send them to all shareholders.
 * 5) Large proprietary companies required to have an external audit and must lodge financial statements and a directors’ report.
 * 6) Small proprietary companies have no requirement to report to members.
 * 7) Large proprietary companies required to provide reports to members four months after the end of the company’s financial year.
 * 8) Both the small and large proprietary companies have no requirement to lodge a copy of the constitution
 * 9) In the case of directors voting on matters where there is a personal material interest being considered at a director’s meeting both the small and large proprietary company can vote.

RECOMMEND, SUPPORTED BY APPROPRIATE EXPLANATION, WHY THIS COMPANY SHOULD REMAIN A PROPRIETARY LIMITED COMPANY:

Based on the discussions, the company should stay as a proprietary limited company because of the numbers of regulatory requirements imposed to public limited companies.

Let us keep in mind that the main difference between the two lays on the number of shareholders or members. The more investors of stockholders, the more funds will be raised.

As we have learned in the past, any person who wishes to do so can incorporate a company to carry on a lawful business enterprise. Most of the time business people assume that a company is the most appropriate form of business organization. Some of the reasons are:

Limited company ensures that the personal assets of the investors are protected against claims by the company creditors There is a tax advantage as the corporate income tax rate is lower than that of the individuals.

If a business is likely to require a large capital base, and wish to finance its activities by selling stocks to public and be listed on the stock market/ exchange, then public company would be the appropriate form.

Many businesses are unlikely to require these abilities and are more inclined to set up a company structure that can be used for tax planning while providing restricted liability and enough flexibility to run the business effectively. Then the appropriate form would be a proprietary company.