Introduction- What Is A Company?
According to Australian law, a company is any business that is legally and financially distinct from its owners and shareholders. Unlike other businesses, a company is viewed as an individual entity that is recognizable and can survive in the absence of individual stakeholders whether it is the directors or other associated businesses. There are many different types of companies by this description. The key distinctive feature in each case is the methods used by those who found the company to raise money. Below is a bit more information on the different business company structures that are recognized in Australia and their legal and financial implications.
Common Company Types
There are many different types of companies including trusts, sole trader companies and partnerships. However, the two most common types are the Proprietary Limited and Public traded companies.
· Proprietary limited companies
A proprietary limited company, also known as a Pty Ltd, and is a privately started, funded and run company. In this case, two or more individuals contribute the funds required to run the company and get to own a part of the company relative to the amount contributed. This is what is referred to as shares. As the company grows, they get to share profits based on amount initially contributed. Pty Ltd companies form the majority of companies in Australia and are regulated by the Australian Securities and Investments Commission.
· Public companies
Public companies on the other hand are privately started companies whose primary source of funds in the public. They raise the capital required to run the company by selling shares in the Australian Stock Exchange market. Unlike Pty Ltd companies, Public companies usually manage to raise funds a lot faster. However, they are accountable to the public that invests in them as well as stock exchange regulatory boards.
Advantages And Disadvantages Of Company Setups:
– Shareholders are not financially liable for the company’s debts.
– Companies and involved stakeholders get to enjoy various tax breaks and reductions that individual owners don’t.
– Existence as a separate entity ensures the company’s long term survival.
– In case of lawsuits, the company’s management is usually not held liable but the company itself takes the fall.
– Directors and managers are accountable to very many external entities especially with public companies.
– Lack of financial liability on the directors’ end makes leasers and other contractors that work on credit unwilling to do business.
– Management is not always above the law and can be held liable for company failure if it was as a result of negligence or some form of breach of contract.Related Tags: Registering a Company | Register a New Company in Australia