How Can I Change From a Private to Public Company?

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Table of Contents

• What is a Public Company Structure?
• Key Reasons to Change to a Public Company Structure
• Additional Obligations for Public Companies
• Changing From a Private Company to a Public Company
• Key Takeaways
• Frequently Asked Questions

When starting a business, a common structure to run your business through is a private company limited by shares. Many opt for this structure because of the limited liability protection and the ease of bringing on investors. However, during the course of running your business, your circumstances might change to the point where a private company is no longer appropriate. This article will explain why a business may change from a private to a public company structure and the process for doing so.

What is a Public Company Structure?

A public company is an entity which can trade its shares on a public exchange market, such as the Australian Securities Exchange (ASX). A public company can be listed or unlisted. The former can offer their shares to the public on the ASX. The latter cannot but can still raise capital through private investment. 

The four different types of public companies are:

• public companies limited by shares;
• public companies limited by guarantee;
• unlimited public companies with a share capital; and
• no liability companies.

Key Reasons to Change to a Public Company Structure

50 Shareholder Limit

The Corporations Act 2001 (Cth) (Corporations Act) limits the number of shareholders a private company can have, the maximum being 50 non-employee shareholders. This does not include any crowd-sourced funding shareholders permitted under the Corporations Act. As such, a private company which has reached this limit may decide to convert to a public company if it wishes to take on further investors. 

Suppose a private company exceeds this limit. In that case, the Australian Securities and Investments Commission (ASIC) may order that the company converts to a public company under section 165 of the Corporations Act. If the company fails to comply within two months, ASIC will change the company into a public company.

Capital Raising Ability

A public company has no limit on the number of shareholders it can take on and can list its shares for sale to the public on a public stock exchange. Accordingly, its capital-raising abilities are virtually endless. Even if a company chooses to convert to a public unlisted company, the lack of a 50-shareholder limit allows the company to take on further private investment than it would have been able to if it had remained private. This additional capital will allow the company to take on additional business expansion opportunities and continue developing its products. 

Additional Obligations for Public Companies

Additional Regulation

Given that often a public company’s shares are available to purchase by the public, ASIC has recognised the need to protect these potential investors. As such, a public company has additional mandatory disclosure requirements for those considering becoming company shareholders. These requirements usually relate to a disclosure document setting out the company’s:

• financial position; 
• liabilities;
• business model; and 
• other key information. 

Additional Reporting Requirements

ASIC requires a public company to prepare directors and financial reports per the Corporations Act’s rules. A company must also audit these reports. Notably, failure to prepare these reports in this manner can result in penalties for the company. 

In addition to preparing the reports, a public company must also:

• lodge them with ASIC within 4 months of the end of the financial year; and
• send them to the company’s members by the earlier of 4 months after year-end or 21 days before the next annual general meeting.

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Other Requirements

Changing From a Private Company to a Public Company

If you decide changing to a public company is appropriate for your business, the process is relatively straightforward:

1. pass a special resolution approving the conversion. This means at least 75% of the company’s shareholders must approve the change; 
2. lodge the necessary documents with ASIC:
   1. ASIC Form 205 – notification of resolution;
   2. ASIC Form 206 – application for change of company type (which at the time of writing has an application fee of $87); and 
   3. a copy of the company’s new constitution;
3. wait for ASIC to approve the application – ASIC must publish a notice in the Commonwealth Gazette regarding the conversion. One month after the notice is published, the change occurs.

Key Takeaways

In certain circumstances, you may need to consider converting your business structure from a private to a public company. This allows your company to take on additional investors (due to the lack of a 50-shareholder limit), which can include those who have purchased shares from the ASX. In addition, this can allow the company to raise capital for its business expansion much easier. However, it is important to remember that running a public company comes with many additional requirements and regulations which can be onerous, so consider it carefully before making the switch.

For more information on how to structure your business, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions