What’s in a name? That which we call a company, by any other name – is not the same. 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; so what are the differences? This article sets out five key features that distinguish a public company from a private company.
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, two of whom ordinarily reside in Australia, and at least one company secretary.
2. Raising Revenue
Proprietary companies by definition are unlisted, restricted from raising 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. Revenue is also raised 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 in itself to the public, allowing the entity to raise large amounts of capital quickly. These shares are listed on the Australian Stock Exchange (ASX), excluding unlisted public companies. Due to the nature of their revenue raising capacity, public entities are also obliged to disclose corporate financial information and must abide by stringent compliance rules, further distinguishing them from private counterparts.
3. 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: limited by shares and unlimited share capital, like private companies, or limited by guarantee and no liability. Companies limited by guarantee restrict the liability of shareholders to the respective amounts they undertake to contribute in the event of it is wound up, as set out in its constitution. No liability companies are restricted to companies whose constitution defines its sole objects are mining purposes and must forego any rights to recover monies from a shareholder who fails to pay them.
The regulatory bodies for companies also differ depending on their type, and whether they are listed or unlisted. Proprietary companies are unlisted and are regulated by ASIC. Conversely, public companies can be listed or unlisted. Depending on the activities they are engaged in unlisted public companies are regulated by ASIC or APRA, while ASIC, ASIX and APRA regulate listed public companies.
Generally speaking, disclosure requirements for private companies are not as stringent as those for public companies. They are impacted by its sub-classification though, determined according to its gross operating revenue and gross asset value. A company is classified as small when it is valued at less than $25 million and $12.5 million respectively, while a large company is defined as having revenue and assets greater than a small company. Unlike large companies, small private companies do not require an audit, or to file financial statements or a directors’ report.
Public companies share similar disclosure requirements to large private companies, but must also provide those reports to their shareholders, have requirements around Annual General Meetings (AGM) and must disclose their constitution to shareholders. Listed public companies share the same obligations, and must also disclose their remuneration report and have must provide notice to shareholders within 28 days of the AGM.
If you are setting up a company, or looking to expand your business, it is important to understand the differences between a public and a private company. If you have any questions, get in touch with our business lawyers.