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You have probably noticed that most company names end with the abbreviation ‘Pty Ltd’. This is short for ‘proprietary limited’. The label of ‘proprietary limited’ for a company refers to its business structure. Specifically, it is where shareholders have limited legal responsibility for the company’s debts. Private companies are relatively easy to set up and not too difficult to maintain. As a result, proprietary limited companies are the most common type of company in Australia. This article will delve deeper into the meaning of the ubiquitous Pty Ltd term and the requirements for Pty Ltd companies.
‘Proprietary’
The ‘Pty’ or ‘proprietary’ in ‘proprietary limited’ means that as a business structure, a limited number of shareholders own the shares in the company. In addition, the company cannot offer its shares to the general public. This is in contrast to public companies which end with the abbreviation ‘Ltd’. An unlimited number of shareholders can own shares in a public company and the company can offer its shares to the general public. If it is a listed company on the Australian Stock Exchange (ASX), you can buy and sell its shares. Private companies are more limited in their ability to raise capital as they are unable to sell an unlimited amount of shares to raise money. However, public companies face stricter regulations, including significant accounting and reporting obligations put in place to protect the public.
‘Limited’
The ‘Ltd’ or ‘limited’ in ‘proprietary limited’ refers to the fact that a shareholder’s legal responsibility for a company’s debts or liabilities is limited to the number of shares they own. In other words, if a company becomes insolvent, the shareholders only lose the money they used to purchase their shares. If a shareholder has only partly paid for their shares, they will need to pay the remaining money they owe for those shares.
An alternative to a company limited by shares is a company limited by guarantee. In these companies, members agree to a certain amount of legal responsibility upon becoming members. In other words, they agree to guarantee a certain amount of liability to the company.
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Small and Large Proprietary Companies
The law distinguishes between small and large proprietary companies and regulates them differently. As of 1 July 2019, a proprietary company is large if it meets at least two of the following criteria:
- its annual revenue is $50 million or more;
- it has assets of $25 million or more; or
- it has 100 employees or more.
What Are the Requirements for Pty Ltd Companies?
As a proprietary limited company, you have certain legal obligations. As of July 1, 2019, you must pay a one-off incorporation fee of $495 to the Australian Securities & Investment Commission (ASIC) to incorporate a Pty Ltd company. In addition, you must pay an annual review fee of $267 on the anniversary of the company’s incorporation.
Under Australian law, proprietary limited companies must have a registered office as well as a principal place of business. ASIC will send documents to the company’s registered office.
A proprietary limited company must also have at least one director who ordinarily resides in Australia. Directors must also comply with the director’s duties set out in the law.
Large proprietary companies have to prepare and submit financial reports and directors’ reports each financial year. In addition, ASIC must audit their accounts. Small proprietary companies do not have to submit these reports unless ASIC requests. However, they must maintain adequate financial records and submit Business Activity Statements to the Australian Taxation Office (ATO).
Use of ‘Pty Ltd’ With a Company’s Name
A company can have both a business name and a company name. The company name is the official name registered with ASIC and used on legal documents. It must have the words ‘Proprietary Limited’ (or the abbreviation Pty Ltd) at the end.
Usually, a company can use a business name without the Pty Ltd abbreviation. The business name does not have to be the same as the company name. To use a business name, you should register a business name with ASIC.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
Key Takeaways
Pty Ltd is short for ‘proprietary limited’ and describes a particular type of private company structure commonly used in Australia. These private companies are privately owned with a limited number of shareholders. They do not offer their shares to the general public. Pty Ltd company shareholders also have limited legal responsibility for the company’s debts.
If you have questions about proprietary limited companies, our experienced business lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
‘Pty Ltd’ is short for ‘proprietary limited’. It refers to a private company where shareholders have limited legal responsibility for the company’s debts. The ‘proprietary’ in ‘proprietary limited’ means that a limited number of shareholders own the shares in the company. In addition, the company cannot offer its shares to the general public. This is in contrast to public companies which end with the abbreviation ‘Ltd’.
Usually, a company can use a business name without the Pty Ltd abbreviation. The company name is the official name registered with ASIC and used on legal documents. It must have the words ‘Proprietary Limited’ (or the abbreviation Pty Ltd) at the end. The business name does not have to be the same as the company name.
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