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When you’re ready to take your business to the next level, one of the biggest decisions you’ll make is whether to operate as a public company or stick to a private company structure. This choice can affect everything from funding and ownership, to legal obligations and even your exit strategy.
The difference between a public and private company is more than just visibility on the stock market. Each structure offers unique advantages – and challenges – that can shape the future of your business. Whether you’re considering going public, transitioning from private ownership, or simply weighing your options for setting up a company, understanding these distinctions is crucial.
In this guide, we’ll break down the pros and cons of public vs private companies in Australia, outline the defining characteristics of each, and walk through the legal essentials you need to know. By the end, you should feel equipped to choose the best path for your business goals – and if you need support along the way, Sprintlaw’s experienced legal team is here to help.
What Is a Private Company vs a Public Company?
Before we compare the two, it’s important to clarify what each term really means in Australia.
Private Company Meaning
A private company (called “proprietary limited” or Pty Ltd) is a company whose shares are held privately by a small group of people (like founders, family, or private investors). Private companies are the most common business structure for small and medium enterprises (SMEs) in Australia.
Key features of a private company:
- Cannot offer shares to the general public on the stock exchange
- Typically has a maximum of 50 non-employee shareholders
- Must have at least one director and one shareholder
- “Pty Ltd” in the company name indicates ‘proprietary limited’ (limited liability)
- Usually subject to fewer reporting and regulatory obligations than public companies
Public Company Meaning
A public company is a company whose shares can be offered to the public, usually via trading on an exchange such as the ASX (Australian Securities Exchange). Public companies can raise funds from the general public and tend to be larger businesses with more complex structures.
Key attributes of a public company:
- Can issue shares to anyone, including public investors
- Must have at least three directors (two must reside in Australia)
- Must appoint a company secretary
- Subject to stricter regulatory and reporting requirements (such as continuous disclosure)
- Can be “listed” (on a stock exchange) or “unlisted” (public but not exchange-traded)
Now that we’ve set the stage, let’s dive deeper into the characteristics of a public company and how they differ from their private counterparts.
What Are the Key Differences Between Private and Public Companies?
The difference between a public and private company goes much further than just the ability to float on the stock exchange. Below, we break down the core differences, so you can better understand which structure suits your business vision.
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Access to Capital:
A public company can raise large amounts of capital from many investors by issuing shares to the public. Private companies raise funds from private investors, banks, or through venture capital. -
Ownership and Shareholders:
Private companies typically have fewer owners, while public companies may have thousands (or more). -
Regulatory Requirements:
Public companies are subject to more comprehensive reporting, disclosure, and compliance requirements – this means more paperwork, oversight, and cost. -
Transfer of Shares:
Shares in a private company are not traded on a public exchange and are usually subject to restrictions on sale. Public company shares are freely transferable on the market. -
Transparency:
Public companies must publicly disclose financials, operations, and other information. Private companies enjoy more privacy. -
Size and Complexity:
Public companies tend to be larger with more employees, operations, and global reach, while private companies are often nimbler and more flexible.
You can learn more about the different types of company structures here.
What Are the Pros and Cons of Private Companies?
If you’re weighing up whether to stay private, here are the main advantages and drawbacks to keep in mind.
Advantages of Private Companies
- Control: With fewer shareholders and no public investors, it’s easier to maintain control over the company’s direction and decision-making.
- Confidentiality: Private companies are not required to publicly disclose financial or operational information, allowing for greater business privacy.
- Simplified Compliance: Reporting, auditing, and regulatory obligations are generally lighter compared to public companies, saving you considerable time and cost.
- Flexibility: You have more flexibility in structuring management, ownership, and internal governance without strict ASX or market rules.
- Lower Costs: Avoiding the expenses (and headaches) of going public – such as initial public offering (IPO) costs, ongoing listing fees, and additional compliance staff.
Disadvantages of Private Companies
- Limited Access to Capital: Raising funds is mainly limited to private sources and shareholder contributions, which can restrict growth opportunities.
- Liquidity: It can be more difficult for shareholders to sell or transfer shares, especially without a large pool of buyers.
- Potential for Ownership Disputes: With fewer stakeholders, disputes between founders or investors can have bigger impacts – making a well-drafted shareholders agreement essential.
- No Public Profile: You might miss out on the branding, investor attention, and prestige that public companies enjoy.
What Are the Pros and Cons of Public Companies?
Aiming to become a public company – especially going for an IPO – is a milestone for many ambitious Australian businesses. However, the leap comes with substantial legal and operational responsibilities.
Advantages of Public Companies
- Capital Raising Power: Public companies can tap into wide pools of investors and access potentially unlimited funds for growth and expansion.
- Share Liquidity: Shares can be bought and sold easily on the open market, making it easier for original investors and founders to exit or realise their investment.
- High Profile and Credibility: Being listed on a recognised exchange raises your business profile and can boost trust with clients, suppliers, and employees.
- Attracting Talent: Offering share-based incentives or employee share schemes becomes easier and more attractive in a publicly traded business.
Disadvantages of Public Companies
- Complex and Costly Compliance: Extensive regulations apply, including detailed financial reporting, continuous disclosure, and scrutiny from regulators like ASIC and the ASX.
- Reduced Control: Founders and majority shareholders often need to answer to (and sometimes be outvoted by) a wider group of external investors.
- Loss of Privacy: Financial and operational information must be shared with the public, competitors, and the media.
- Market Pressure: Short-term market expectations can influence business decisions, sometimes at the expense of long-term strategy.
- Disclosure of Corporate Governance: Public companies are required to follow corporate governance rules and make information (like executive pay) public, which can add scrutiny and complexity to management.
Which Structure Is Right for Your Business?
As you can see, there are significant differences between private and public companies. Choosing the right structure comes down to your business goals, size, funding needs, desire for privacy, and long-term exit plans.
When to Choose a Private Company
- You want to retain close control over business decisions and direction.
- Your funding needs can be met by private investors, venture capital, or loans.
- You want to keep operational and financial information confidential.
- Your business is small- or medium-sized, or in early growth.
When to Consider Becoming a Public Company
- You plan to scale rapidly and need significant capital for expansion.
- You want to provide liquidity for founders, employees, or investors (an exit route).
- Your company has strong governance, established processes, and is ready to operate transparently.
- You intend to build a lasting public brand with large-scale operations.
It’s wise to consult a business lawyer experienced in corporate structures before making a decision. The move from private to public is a major legal and operational transformation, so proactive planning is essential.
What Legal Requirements Do Public and Private Companies Need to Meet?
Both company types fall under the Commonwealth’s Corporations Act 2001 (Cth), but public companies are subject to much stricter rules. Here are some points to remember:
- Registration: Both must be registered with ASIC. The process and fees are similar, but public companies must meet extra requirements (like more directors).
- Disclosure and Reporting: Public companies must disclose financials, continuous operations, and material events. Private companies only need to provide info to shareholders and ASIC.
- Meetings: Annual General Meetings (AGMs) are compulsory for public companies, but discretionary for most private companies.
- Auditing: Public companies must be audited every year. Small private companies often don’t need formal audits.
- Directors and Company Secretary: Public companies require at least three directors (two Australian residents) and a company secretary. Private companies need only one director and don’t have to appoint a secretary.
Read more on setting up a company structure in Australia.
What Legal Documents Will I Need?
No matter which structure you choose, having the right legal paperwork in place is vital from day one. Here are some key legal documents to consider:
- Company Constitution: Sets the rules for running your company and should be tailored whether public or private. Learn how to adopt a constitution for your business.
- Shareholders Agreement: Outlines decision-making processes, share transfers, dispute resolution, and more – essential for managing stakeholder relations in private companies, and sometimes also public companies with key shareholders.
- Board Governance Policies: For public companies in particular, clear governance policies (covering director duties, conflicts of interest, meeting procedures, and reporting) are a must – see our guide on board roles and responsibilities.
- Employment Agreements and Policies: No matter the company type, you need clear employment contracts, workplace policies, and procedures to comply with Australian employment law.
- Privacy Policy: If you collect any personal information, you’ll need a Privacy Policy that complies with the Australian Privacy Act (especially important for public companies under greater scrutiny).
- Terms and Conditions: If you sell products or services (online or offline), customised Terms and Conditions protect your business and clarify your customer relationships.
- Intellectual Property Protections: Register your trade marks, patents, or designs to secure your brand and innovations.
Not all companies need every document listed above. For tailored advice on which legal agreements your business specifically needs – and how to set them up correctly – it’s best to consult with a legal expert.
What About Transitioning From Private to Public? (IPO Guide)
Many successful private companies dream of “going public” via an Initial Public Offering (IPO). This process involves selling shares to public investors and listing on the ASX. Here’s what you’ll need to consider:
- IPO Process: You’ll need to work with lawyers, accountants, and investment bankers to prepare extensive legal, financial, and operational documentation.
- Prospectus: A formal disclosure document outlining the opportunity, risks, and details of the share offering.
- Corporate Governance: Your company governance and operations must be “public company ready”, which usually means reviewing and updating your constitution and board processes.
- Regulatory Approvals: Listing on the ASX requires approval and ongoing compliance with market listing rules.
- Public Disclosure: Get ready for continuous public reporting, regular audits, and responding to shareholder questions.
Transitioning from private to public is a significant legal undertaking – Sprintlaw can help ensure your documents, processes, and governance are in order for a smooth IPO journey.
Key Takeaways
- Deciding between a public and private company structure in Australia comes down to your goals for control, capital raising, privacy, and compliance.
- Private companies offer more control, flexibility, and confidentiality, but have limited access to public funding and share liquidity.
- Public companies can raise more capital, offer share liquidity, and have a bigger public profile, but face heavy regulatory and disclosure requirements.
- Legal requirements differ – public companies must comply with stricter reporting, governance, and ASIC rules in Australia.
- Getting the right legal documents (like a company constitution, shareholders agreement, and privacy policy) in place early is essential, whichever structure you choose.
- Professional legal advice can clarify your options and help you set up – or transition – your company with confidence.
If you’d like a consultation on whether a public or private company is best for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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