What is a proprietary company?
Proprietary limited company or Pty Ltd meaning
A proprietary limited company, often abbreviated as Pty Ltd, is the most common company structure in Australia that many entrepreneurs and small business owners choose for their ventures. It is a separate legal entity from its owners (the shareholders), which means that the company can enter into contracts, own assets, and incur liabilities in its own company name.
Upon registration, the Pty Ltd company is issued with an ACN (Australian Company Number). It’s important to note that proprietary limited companies cannot offer shares or share transfers to the general public and also have restrictions on fundraising, as their shares are not publicly traded.
Under the Corporations Act 2001 (section 41A), a proprietary company must:
- be limited by shares or be an unlimited company with a share capital;
- have at least 1 shareholder (or member) and have no more than 50 non-employee shareholders;
- have a registered office address in Australia;
- not do anything that would require disclosure to investors under Chapter 6D of the Corporations Act; and
- have at least 1 director who ordinarily resides in Australia (note: A proprietary limited company is not required to appoint a Company Secretary, however if 1 or more is appointed, 1 must ordinarily reside in Australia).
Proprietary companies can be large or small. A small proprietary company must satisfy 2 out of the following 3 criteria in a financial year:
- consolidated revenue for the financial year is less than $25 million;
- value of consolidated gross assets at the end of the financial year is less than $12.5 million; and
- the company has less than 50 employees.
Large proprietary companies must prepare and submit financial reports and directors’ reports each financial year to ASIC, the corporate regulator. Small proprietary companies do not have to submit these reports unless requested by ASIC, or unless they are foreign controlled.
Small Foreign Controlled Company Requirements
A small proprietary company that is controlled by a foreign company (for all or part of the financial year) must comply with certain financial reporting and audit reporting requirements. These financial reports must be audited and lodged with ASIC within four months of financial year end. However, small foreign controlled proprietary companies (that are not part of a large group) can seek relief from the requirement to appoint auditors and prepare and lodge financial reports if the directors resolve to rely on the relief provided by ASIC Corporations (Foreign-Controlled Company Reports) Instrument 2017/204 and lodge notice of that resolution within the time requirements.
What are the advantages of a proprietary limited company?
Operating as a Pty Ltd company in Australia offers several advantages for small to medium-sized businesses. Here are some of the key benefits of choosing this business structure:
- Limited liability protection: One of the main advantages of a proprietary company is that it provides limited liability protection for the shareholders. This means that the personal assets of the shareholders are generally protected from business debts and lawsuits. The shareholders are only liable for the debts of the company up to the amount of their shareholdings, which provides a greater degree of security and protection for their personal assets.
- Greater control: Another advantage of a Pty Ltd company is that it provides greater control over the business. The shareholders can appoint the directors and make important business decisions, which allows them to shape the direction and strategy of the company.
- Tax benefits: Pty Ltd companies may also be eligible for certain tax benefits, such as lower tax rates and deductions for business expenses. This can help to reduce the tax burden on the company and increase its profitability, alleviating some pressure on any of the company’s debts.
- Professional image: Operating as a Pty Ltd company can also help to create a more professional image for the business. It can signal to customers, suppliers, and investors that the business is serious and committed to its long-term success.
Deciding which structure your company falls under depends on your business needs. A Pty Ltd company provides limited liability protection, greater control over the business, and a more professional image, among other benefits. Larger businesses with significant capital needs may benefit from a different business structure in Australia – the Public Limited Company (PLC). This type of public company could allow more fundraising options. However, it is important to understand the legal requirements and compliance obligations that come with each business structure, and to seek professional advice before making any serious decisions.