Whether a company is defined as public or private is critical to determine the manner in which it operates, trades and complies with corporate regulations. This article sets out five key features that distinguish a public company from a private company.

Shareholder Size Limits

A private company, also known as a proprietary company, is limited in size by its constitution. It must have at least shareholder and up to a maximum of 50 non-employee shareholders. Conversely, a public company must have a minimum of one shareholder, typically more than 50 non-employee shareholders and has no maximum limit.

The type of company will also determine the makeup of its executive level. A private entity must have at least one director and is not required to have a company secretary. In contrast, public companies must have at least three directors and at least one company secretary. Two of these directors must ordinarily reside in Australia.

Methods for Raising Revenue

Proprietary companies by definition are unlisted. They cannot raise capital by selling shares to the public. Funding for these enterprises typically originates outside public markets, usually from their directors or by accessing commercial lines of credit. Private companies can also raise revenue by offering shares to existing shareholders or employees.

On the other hand, public companies can be listed or unlisted, and are entitled to collect funds by providing securities (shares) in itself to the public. This allows a public company to raise large amounts of capital quickly. Listed public companies have their shares listed on the Australian Stock Exchange (ASX). Due to the nature of their revenue raising capacity, public companies must also disclose corporate financial information. They must also abide by stringent compliance rules, further distinguishing them from private companies.

Shareholder Liability

There are two liability sub-categories of private companies: limited by shares or unlimited share capital. Companies limited by shares restricts the creditor liability of its shareholders to the nominal value of their shares. As the name suggests, shareholders of unlimited companies have no limit placed on their liability.

Public corporations fall into four liability sub-categories:

  1. limited by shares;
  2. unlimited share capital (like private companies);
  3. limited by guarantee; or
  4. no liability.

Companies limited by guarantee restrict the liability of shareholders to the amounts they have agreed to contribute to paying debts should the company be wound up. The company constitution will specify these amounts.

The only companies that can be ‘no liability’ companies 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.

Regulators

The regulatory bodies for companies differ depending on whether they are:

  • private or public; or
  • 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

 

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, or to file financial statements or a directors’ report. In contrast, large private companies — those with valuations greater than the small private company threshold amounts, 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.

Key Takeaways

A private company and a public company will 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. However, all types of companies have different regulations that apply that you must understand when operating a 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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