Wondering about the differences between public and private companies?
The main difference is the public are able to invest in public companies, but they can’t invest in private companies. In other words, public companies can be listed on the Australian Securities Exchange (ASX).
With this power comes responsibility—as a result, public companies have more paperwork when it comes to disclosure requirements.
While both private and public companies are regulated by ASIC, some public companies can also be regulated by Australian Prudential Regulation Authority (APRA).
There are also liability differences and lots of other regulatory differences which we’ll get into below. But first, let’s identify what a public or private company is.
How To Tell Whether A Company Is Public Or Private
Firstly, companies can be divided into two categories, private (otherwise known as proprietary) or public.
Within the private category, private companies are divided further into a large or small private company.
Small or medium sized businesses are generally private companies.
If You’re A Private Company, Are You Big Or Small?
This is how you figure out whether your private company is a big or small one!
To be a large private company on or from 1 July 2019, you need to satisfy 2 of the below criteria for each financial year.
|Consolidated revenue||$50 million or more|
|Consolidated gross assets||$25 million or more|
|Company (and entity it controls) employees||100 or more|
And to be a large private company, before 30 June 2019, you need to have met the below requirements.
|Consolidated revenue||$25 million or more|
|Consolidated gross assets||$12.5 million or more|
|Company (and entity it controls) employees||50 employees or more|
Structural And Shareholder Differences Between Public & Private Companies
For public companies:
- There is no limit to the amount of shareholders you can have
- There must be a minimum of 3 directors, 2 of whom reside in Australia
- There must be a minimum of 1 company secretary
- There needs to be a registered office accessible to the public
For private companies:
- There is a limit of 50 shareholders who are not employees of the company
- There must be a minimum of 1 director
- A company secretary is optional
- A registered office is still a prerequisite, but it doesn’t have to be accessible to the public
Prospectus Requirements For Public & Private Companies
If you are operating a public company, you will need to release a ‘prospectus’ to shareholders which includes details on the company’s financial risks, profits, losses, assets, liabilities, business model and other information.
Private companies, on the other hand, can’t raise funds in any way that would require a prospectus. This limits a private company’s options when raising capital.
Something to note on the topic of fundraising, though, are recent changes to the law which allow private companies to crowdfund.
Reporting Obligations For Public & Private Companies
A public company must prepare both a director’s report and a financial report on an annual basis and have this independently audited.
There are some exceptions for public companies, which you can check out here.
Meanwhile, a private company is generally off the hook. A private company only needs to meet reporting obligations if they are a ‘large company’.
What Else Does a Public Company Have To Do?
If you’ve ever invested in shares, you would have received a copy of the public company’s constitution, financial statements, and directors reports. This is actually an obligation for public companies to report to their shareholders.
As well as this, public companies have to hold annual general meetings and manage a share register.
Why Would You Switch From A Private Company To A Public Company?
It is common for private companies to switch to a public company when they reach the limit of shareholders permissible, and wish to grow. There are however, many more differences that you should consider first, and discuss with a lawyer.
Feel free to contact us at firstname.lastname@example.org or on 1800 730 617 to find out more about the best company structure for your business. We’re available any time for a free, no-obligations chat.
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