In Australia, businesses have the option to operate as either private or public companies, each with its unique set of advantages, disadvantages, and regulatory requirements. Understanding the differences between private and public companies is crucial for entrepreneurs and investors.
OWNERSHIP STRUCTURE
Private companies (also known as proprietary companies) are typically owned and operated by a small group of individuals, often referred to as shareholders. The number of shareholders in a private company is limited; its registered office does not have to be accessible to the general public, although it must have at least one director, the company secretary is optional, and shares are not traded on public stock exchanges. Private companies can be large or small depending on the quantum of the company’s consolidated revenue, consolidated gross assets and employees under each financial year. Private companies are known for their flexibility and ability to make decisions quickly, as ownership is concentrated in the hands of a few individuals.
Public companies, on the other hand, have a broader ownership structure, with shares available for purchase by the general public on stock exchanges, such as the Australian Securities Exchange (ASX). This means that ownership is dispersed among a larger number of shareholders. In addition to a publicly accessible registered office, public companies must have a minimum of one company secretary and three directors, whereas two reside in Australia. Public companies must adhere to stringent regulations to protect the interests of their shareholders, and major decisions often require approval from a majority of shareholders.
CAPITAL RAISING
Private companies generally raise capital through private investments, loans, crowd-sourced funding or retained earnings. Because they are not listed on stock exchanges, they have fewer avenues for raising funds compared to their public counterparts. Private companies may find it challenging to access large amounts of capital quickly.
Public companies have the advantage of raising capital through the sale of shares on the stock market. This provides them with access to a vast pool of investors and the ability to generate significant funds for expansion, research and development, and other strategic initiatives. However, going public involves compliance with extensive regulatory requirements and ongoing reporting obligations. For example, a prospectus outlining the company’s profits and losses, assets and liabilities as well as financial risks, and business details must be released to the shareholders or prospective shareholders.
DISCLOSURE AND TRANSPARENCY
Private companies in Australia have less stringent disclosure requirements compared to public companies. They are not obligated to provide as much information about their financial performance, operations, and management practices to the public. There is no specific requirement in the Corporations Act 2001 (Cth) in relation to holding an annual general meeting (AGM) for proprietary companies with more than one member. This confidentiality can be appealing to businesses that value privacy and wish to keep their operations out of the public eye.
Public companies are subject to comprehensive disclosure and transparency regulations. They are required to regularly release financial statements, annual reports, including directors’ reports, and other relevant information (including corporate constitution) to the public. Public companies are to hold AGMs and maintain share registers. This transparency is essential for protecting the interests of shareholders and ensuring that potential investors have access to the information they need to make informed decisions.
REGULATORY COMPLIANCE
Private companies regulate by the Australian Securities and Investments Commission (ASIC) face fewer regulatory burdens than their public counterparts. While they must comply with certain regulations, such as taxation and corporate laws, the regulatory framework is generally less complex and demanding except for reporting obligations for large private companies.
Public companies in Australia are subject to stringent regulatory oversight from government bodies, such as the ASIC, ASX or sometimes even the Australian Prudential Regulation Authority (APRA). Normally, public companies must produce independently audited director’s reports and financial reports. Compliance with continuous disclosure requirements, corporate governance standards, and market rules is essential for maintaining a public listing.
The IP House Lawyers has assisted many clients in choosing suitable business structures that align with their specific business needs and business goals, including cost and cash flow, risk profile and tolerance, tax considerations, and long-term growth plans. We can also act as your legal expert in preparing, reviewing and drafting legal documents such as partnership agreements, trust deeds, corporate constitutions and shareholder agreements, as well as company and business name registration.
For any further information or queries on the above content, please contact us.
The Author
Jean Kallmyr | Lawyer, The IP House Lawyers | t: 0435 799 831 | e: admin@theiphouse.com.au
Key Contact
Claire Darby | Managing Director/Lawyer, The IP House Lawyers | t: 0412 998 951 | e: claire@theiphouse.com.au
Disclaimer
The information and contents of this publication do not constitute any legal or financial advice. This publication is intended only for reference purposes for The IP House Lawyers’ clients and prospective clients.
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