The Legal Difference Between a Small and Large Company

Introduction

In Australia there are two types of companies that your business can enrol as – a proprietary company or a public company. You will often find that small and medium businesses will register as proprietary companies while larger companies will have the choice to enrol as either. Read on to learn how the law differentiates between a small and large company, and the different expectations that come along with each business size.

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Are You a Large Company?

Your business is a large company if it meets at least two of the following factors:

  • The revenue made in the previous financial year is $50 million or more;
  • The gross assets owned by the end of the financial year equates to $25 million or more, and/or
  • The company has over 100 employees by the end of the financial year

If your company does not meet at least two of these factors then you are running a small company.

Gaining Funds

The biggest difference between a proprietary company and a public company is how they get their funds. Proprietary companies generally receive funding from creditors, such as banks, or are funded by their directors. They are unable to offer their shares to external shareholders.

On the other hand, a public company allows you to raise money by issuing shares to people external from the business. To do so you will need to issue a prospectus and lodge the necessary documents to ASIC. To determine which option suits you best, you may find a legal health check helpful.

Reporting Obligations

Proprietary Companies

Unlike small proprietary companies, large proprietary companies have to provide a range of documents. This includes submitting financial reports, audited accounts and annual director’s reports.

Public Companies

If you are running a public company then the requirements are more stringent. You need to submit your constitution to the shareholders, hold an Annual General Meeting, maintain a share register and provide all of your financial reports to the shareholders.

Tax

Outside of the differences between proprietary companies and public companies, a major distinction between small and large companies is the amount of tax payable. Businesses that make less than a $50 million turnover in the financial year are required to pay 27.5% company tax. On the other hand, companies with a turnover more than $50 million are charged 30% tax for the financial year.

Conclusion

As seen from above, there are major legal differences between small companies and large companies within Australia. It is nonetheless important to keep in mind that each structure has its perks and responsibilities. While large companies, for example, have more reporting expectations and taxes to pay, they are nevertheless given the flexibility of registering as either a proprietary or public business. As a director, you have many options that you can employ. To make the most suitable decision it is strongly recommended that you speak to one of our business lawyers. They will assist you in choosing a path that will maximise your company’s potential for the present and future.

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