The terms used to describe the various entities that operate in Australia depend on multiple factors such as their operations, aims of the organisation, and size. The term business is restrictive in that it implicitly only relates to entities intending to make a profit. The ATO uses the term ‘business’ in a much broader sense. Each reference the ATO makes to a business means ‘enterprise’. An enterprise is considered any business or other commercial activities that are not related to the following:
- Private recreational pursuits and hobbies;
- Activities carried on as an employee, labour-hire worker, director or office holder; or
- Activities individuals carry on without a reasonable expectation of profit (with some exceptions).
This definition also includes operations such as charities, DGRs, religious, government and some non-profit organisations. The definition is purposely broad and as such, a wider range of entities are required to register for GST.
Groups within Groups
There are three different types of businesses the definition captures (as determined by the number of employees): small, medium and large.
- Small businesses employ less than 20 staff;
- Medium businesses employ 20 to 199 staff; and
- Large enterprises employ 200+ staff.
But to keep things simple on the LegalVision website, if you see reference to the term ‘business’, we mean one with 199 employees or less. If you see the term ‘enterprise’, we mean companies with 200 or more employees.
Enterprise Business Structures
As mentioned above, an enterprise has 200 or more employees. By the time your company has reached this stage, you are likely to have a significant number of non-employee shareholders. Once the number of non-employee shareholders exceeds 50, you’re required to change your company structure from a private company (such as a proprietary limited company) to a public company. Public companies can be either unlisted or listed on a registered exchange (such as the ASX), and both can sell shares to the public. As they can raise funds from the general public, there are increased compliance requirements to protect investors. Changing from a private company to an unlisted public company also attracts increased obligations under the Corporations Act including preparing financial statements and opening your registered office for a certain number of hours each business day.
Changing from a Proprietary Limited to an Unlisted Public Company Limited by Shares
Once you cross the threshold of 50 non-employee shareholders, you’re required to change your company structure and inform the Australian Securities and Investments Commission (ASIC) of the changes. To alter your structure, you must first pass a special resolution. A special resolution must first satisfy certain requirements before it is passed, for example, sufficient notice of the meeting and the matter shareholders intend to vote on.
Once shareholders have approved through a special resolution the change in company structure, you must inform ASIC of the changes. You will require two forms to notify ASIC:
- Notification of the resolution (Form 205); and
- Notification that the resolution has altered shares (Form 2205).
Internal Changes Once You’re a Public Company
Once you’ve changed your company structure, you’ll be required to comply with greater levels of regulation under the Corporations Act as you’re now able to sell shares to the public. As mentioned above, this is largely an attempt to protect the public, and the market, from unscrupulous business people who aim to exploit the average investor’s comparative lack of experience. Below, we’ve set out some examples highlighting the difference in requirements between a proprietary limited company and unlisted public company.
Changes to Minimum Office Holders
If you’re changing from a proprietary limited company to an unlisted public company, the requirements for minimum officeholders will increase from at least one director (who must ordinarily reside in Australia) to three directors (two of whom must ordinarily reside in Australia).
In addition to the requirement for three directors, you’ll also need to nominate at least one company secretary – at least one of whom must ordinarily reside in Australia. You should know when this obligation will commence as unlisted public companies do not receive a period of grace where they are exempt from the minimum number of officeholder requirements.
Unlisted public companies are still required to maintain a share register. However, unlike proprietary limited companies, you are not required to inform ASIC every time there is a change in members. Your members must be able to inspect the share register.
Financial Report Requirements
While there are requirements for some proprietary limited companies to keep financial records, unlisted public companies are required to maintain, and lodge, financial reports with ASIC. These reports must be created in accordance with the standards of Chapter 2M of the Corporations Act 2001. There are also additional requirements, such as having the records audited, to ensure that the reports are an accurate representation of the financial health of the company. These reports are complex financial documents that require the assistance of experienced accountants to ensure you have discharged all of your obligations.
These are just some of the changes required by law once you make the exciting change from a proprietary limited to an unlisted public company. There are a significant number of other changes that will be required, and your company’s requirements will vary depending on the industry you operate in and the services you provide.
If you have any questions about changing from a proprietary limited to an unlisted public company or complying with your obligations as an unlisted public company, get in touch with our business lawyers on 1300 544 755.