Setting up a proprietary company in Australia.

What is a proprietary company in Australia?

The proprietary company provides limited liability to shareholders, meaning that the liability falling upon shareholders in the event of a wind-up is equivalent to the unpaid amount (if any) on their shares.

A proprietary company requires at least one shareholder and no more than 50 non-employee shareholders. At least one director must be a resident of Australia.

The process for the establishment and incorporation of a Pty Ltd company is easy, fast and inexpensive.

What restrictions apply to proprietary companies?

The company cannot engage in fundraising activities that would require the lodgement of prospectus (i.e., seeking to raise funds from the public). They can, however, raise money through private sales of equity.

Difference between large and small proprietary companies

A proprietary company may be classified as a large proprietary company if two out of these three criteria are met:

The consolidated revenue for the financial year of the company and any entities it controls is AUD 50 million or more
The value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is AUD 25 million or more
The company and any entities it controls has 100 or more employees at the end of the financial year

If a company does not satisfy at least two of the above criteria, it is considered a small proprietary company.

Steps of incorporating a proprietary company

There are two main steps in the process of incorporating a proprietary company.

Step 1. Choosing and reserving a company name

A register of Australian company and business names is maintained by the corporate regulator, Australian Securities and Investments Commission (ASIC). A simple name search can be undertaken on their website.

There are certain stipulations that apply to naming a company.

The company name must use the suffix Pty Ltd or have Proprietary Limited in their company name and cannot be identical to an existing registered name, and it cannot contain words that could mislead people about your activities, for example, bank, trust, incorporated or royal.

Proposed company names that are considered offensive or suggest illegal activity are likely to be rejected.

To reserve your company name, you will need to lodge Form 410 – Application for Reservation of a Name with a fee of AUD 51. Once the application is approved, the name will be reserved for two months. You will need to reserve the name again if you want to extend the reservation period.

Step 2: Deciding how the company will be governed

A company in Australia can be governed by one of the following three:

Company constitution
Replaceable rules
A combination of both

A constitution is a document that outlines the rules governing the relationship between and activities of the company, its directors and shareholders. This document generally guides how meetings are run (both board meetings and members meetings), as well as a host of other procedural governance items.

If a company does not adopt a constitution, it can use the replaceable rules instead. Replaceable rules appear in the Corporations Act and provide basic rules for governing a company.

Step 3: Appointing company officers

A proprietary company in Australia is a business structure that is required to have at least one shareholder and not more than 50 non-employee shareholders.

The company must have at least one director who is a resident of Australia and a resident company secretary if any secretary is appointed.

Step 4: Registering your company

Company registration for an Australian company could originally be done by submitting Form 201 – Application for Registration as an Australian Company to the ASIC. However, from 2019, company registrations must be made online, and the Form 201 paper form is no longer available.

Online company registration can be made through the Australian government’s Business Registration Service (BRS). The BRS combines company and tax registration which makes the process more straightforward and simpler.

Post-registration requirements

Once the company is incorporated, various other matters need to be undertaken, including:

Applying for an Australian Business Number (ABN) and Tax File Number (TFN) with the Australian Business Register (ABR)
Maintaining various statutory company registers
Nominating a Public Officer with the Australian Taxation Office (ATO)
Opening a bank account (this is required to register with the ATO)

Ongoing reporting requirements

All Australian companies are required to keep financial records and various registers of their financial and administrative transactions.

If the company is considered a large proprietary company, it must also prepare annual financial reports that are:

Prepared in accordance with Chapter 2M of the Corporations Act 2001
Audited
Lodged with ASIC within four months of the financial year-end
Sent to members within four months of the financial year-end

Proprietary companies that are wholly owned by foreign subsidiaries must also fulfil these reporting requirements unless relief is granted by ASIC.

Companies must also notify ASIC if the following changes are made:

Company name (within 14 days of the change)
Company details, e.g., registered office or principal place of business (within 28 days of the change)
Company constitution (within 28 days of the change)
Directors’ details: names, addresses, new appointments or resignations (within 28 days of the change)
Share structure or shareholder details (within 28 days of the change)

Conclusion

A proprietary company requires at least one shareholder and no more than 50 non-employee shareholders. This type of company provides limited liability to its shareholders, and assets will not be at risk if the company fails. Contact Acclime if you are interested in incorporating a proprietary company; we can help prepare and lodge all relevant documents to the ASIC.

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