PROPRIETARY COMPANIES (often referred to as 'private companies') vs PUBLIC COMPANIES

A proprietary company is by far the most popular (and generally the most suitable) type of company for a small business, or private investment entity, which proposes to trade as a company.

One of the key differences between a proprietary company and a public company is that with a proprietary company there is a mechanism to stop unwanted persons becoming shareholders/owners in the company. That is, the directors of a proprietary company may refuse to register a transfer of shares in the company for any reason - section 1072G of the Corporations Act 2001. And until the transfer of the shares is registered the transferor/seller remains the holder of the shares being transferred - section 1072F(1).
This is one of the main reasons that the majority of family companies are proprietary companies. It is also the reason why proprietary companies are often referred to as 'private companies'.

A proprietary company is prohibited from engaging in any activity that would require the lodgment of a prospectus (broadly speaking, selling shares in itself to the public or seeking loans from the public) except for an offer of its shares to existing shareholders of the company or employees of the company or one of its subsidiaries - section 113(3) of the Corporations Act 2001.

Further details about proprietary companies and public companies are provided below.

A proprietary company -

• must have at least one member/shareholder (i.e. owner) - section 114 of the Corporations Act 2001;
• must have no more than 50 non-employee shareholders (i.e. owners) - section 113(1) of the Corporations Act 2001;
• must have at least one director - section 201A(1) of the Corporations Act 2001;
• must have at least one of its directors ordinarily residing in Australia - section 201A(1) of the Corporations Act 2001;
• no longer needs to have a company secretary (since a change to the law effective 13 March 2000), but may have one or more company secretaries - section 204A(1) of the Corporations Act 2001;
• if it does have a company secretary or secretaries, at least one company secretary must ordinarily reside in Australia - section 204A(1) of the Corporations Act 2001;
• is not required to keep its registered office open to the public - sections 142(1) and 145(1) of the Corporations Act 2001 (by implication); and
• need not appoint or have an Auditor - as a consequence of section 325 of the Corporations Act 2001.

There are now only two types of proprietary companies which may be formed -

1. A proprietary company limited by shares.
2. An unlimited proprietary company with a share capital.

(section 112(1) of the Corporations Act 2001)

A public company -

• must have at least one member/shareholder (i.e. owner) - section 114 of the Corporations Act 2001;
• must have at least three directors - section 201A(2) of the Corporations Act 2001;
• must have at least two of its directors ordinarily residing in Australia - section 201A(2) of the Corporations Act 2001;
• must have at least one company secretary - section 204A(2) of the Corporations Act 2001;
• must have at least one company secretary ordinarily residing in Australia - section 204A(2) of the Corporations Act 2001;
• must keep its registered office open to the public during certain hours - section 145(1) of the Corporations Act 2001; and
• must appoint and have an Auditor - section 327A of the Corporations Act 2001.

There are now only four types of public companies which may be formed -

(section 112(1) of the Corporations Act 2001)