Is there a limit on the number of shareholders your private company can have? Read more to find out about shareholders in private companies.
In Australia, there are two types of companies: proprietary and public. Proprietary companies are also known as private companies. They are the most common form of company. The key difference between the two types of companies, is in their funding. Public companies are open to investments from the public. Whereas private companies do not receive their funding from public offerings.
What are Shareholders?
A shareholder is a member of a company. They are also owners of the company. Moreover, shareholders have certain rights and responsibilities within the company. For example, they help make decisions at company meetings. You can read more about shareholders here.
How Many Shareholders Can a Private Company Have?
All companies must have at least one (1) shareholder. There are no limits on the number of shareholders of a public company. A private company, however, can only have fifty (50) shareholders.
You can read more about shareholders in public companies here.
To clarify, private companies can only have fifty (50), non-employee shareholders. Importantly, this means that your company can have more than fifty (50) shareholders, if they are employees.
Additionally, the law does not limit private companies to fifty (50) shares. A private company can have thousands of shares, as long as they are controlled by no more than 50 shareholders (not including employees).
How to Manage Changes to Shareholders
An individual can become a shareholder of your company by:
- listing as a shareholder at the time of registration;
- agreeing to become a shareholder once your company is already registered with ASIC; or
- being a member of your company limited by guarantee when it converts to a company limited by shares.
Then, you must also notify ASIC about these changes to your company. If you do not notify ASIC within 28 days of the change, you will be charged a late fee.
Notably, private and public companies have different responsibilities when it comes to notifying ASIC.
As a private company, you must inform ASIC of any changes to member details and the share structure. This includes:
- issue or cancellation of shares;
- share conversion; and
- share division.
On the other hand, ASIC requires public companies to tell ASIC about changes to the share structure. A public company is not required to notify ASIC of changes to member details.
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Do I Need a Shareholders Agreement for my Company?
A Shareholders Agreement is useful as it helps you to navigate the relationship between your company shareholders. Certainly, you and your partners may be on good terms now but this may change in the future. Running a company can put strain on that relationship. As your company grows and changes, a Shareholders Agreement will help you address disputes.
Importantly, you must note that you can only form a Shareholders Agreement when all existing shareholders consent.
Conclusion
It is important that your company complies with ASIC regulations surrounding changes to the members. To understand your responsibilities when adding or removing shareholders, you may like to speak with a company lawyer.
