Public and private companies operate very differently to each other. They each conduct business and comply with corporate regulations in distinct ways.
In this article, we set out five key features that distinguish a public company from a private company.
1. Shareholder and Director Requirements
A private company, also known as a proprietary company, is limited in size by its constitution. It must have:
- at least one shareholder;
- a maximum of 50 non-employee shareholders;
- at least one director; and
- is not required to have a company secretary.
Conversely, a public company must have:
- at least one shareholder;
- at least three directors (two of which must live in Australia); and
- at least one company secretary.
Additionally, public companies have no maximum limit on the number of shareholders.
2. Methods for Raising Revenue
Private companies by definition are unlisted. This means they do not feature on the Australian Stock Exchange (ASX) and cannot raise capital by selling shares to the public. Instead, they generate funding from outside public markets, such as by:
- obtaining finance from company directors;
- accessing commercial lines of credit; or
- offering shares to existing shareholders or employees.
On the other hand, public companies can be listed or unlisted. Listed public companies have their shares displayed on the ASX. They are entitled to collect funds by providing shares to the public. This allows a public company to raise large amounts of capital quickly.
Due to the nature of their revenue-raising capacity, public companies have a higher regulatory burden and must disclose corporate financial information to shareholders and regulators each year. They must also abide by stringent compliance rules, further distinguishing them from private companies.
3. Shareholder Liability
A shareholder is a part owner of a company. However, their responsibilities (or liabilities) for the company’s obligations are generally limited.
There are two liability sub-categories of private companies:
- limited by shares: the company restricts the creditor liability of its shareholders to the nominal value of their shares; or
- unlimited share capital: shareholders have no limit placed on their liability.
There are four liability sub-categories of public companies:
- limited by shares;
- unlimited share capital (like private companies);
- limited by guarantee: shareholder liability is restricted to the amount they have agreed to contribute to paying debts should the company be wound up; or
- no liability: the only companies that fall into this sub-category are those whose constitutions define their sole objects as mining purposes. They must forgo any rights to recover monies from a shareholder who fails to pay them.
The regulatory bodies for companies differ depending on whether they are:
- private or public; and
- listed or unlisted.
|Type of Company||Listed or Unlisted||Regulator|
|Private||Unlisted||Australian Securities and Investment Commission (ASIC)|
|Public||Unlisted||ASIC or Australian Prudential Regulatory Authority (APRA), depending on activities|
|Public||Listed||ASIC and APRA|
5. Disclosure Requirements
Generally speaking, disclosure requirements for private companies are not as stringent as those for public companies. Small private companies have the least disclosure requirements. A small private company is one with a gross operating revenue of less than $25 million and gross asset value of less than $12.5 million. Small private companies do not require an audit and do not need to file financial statements or a directors’ report. In contrast, large private companies must file these disclosure statements.
Public companies share similar disclosure requirements to large private companies, but must also:
- provide those reports to their shareholders;
- hold annual general meetings (AGMs); and
- disclose their constitution to shareholders.
Listed public companies must also disclose their remuneration report and provide notice to shareholders within 28 days of the AGM.
A private company and a public company differ in several important ways. One of the most important differences is that private companies cannot raise money from the public. A private company is also subject to less stringent regulations than a public company.
If you have any questions about setting up a company, call LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
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