Company names often end with the term ‘Pty’ or ‘Pty Ltd’. This is because no matter what you decide to name your company, it must include its liability status in its legal name. If you’re starting a company, it can be difficult to determine which one applies.
Essentially, Pty Ltd is for private companies, and Ltd is for public companies. However, that’s not the whole story. In this article, we’ll explain what Pty and Pty Ltd mean and how they apply to different companies.
Read along!
What is a Pty Ltd company?
Pty means proprietary, and Ltd means limited. Pty is usually associated with private companies that aren’t listed on the Australian Stock Exchange (ASX). If you choose to use a Pty Ltd structure for your company, there are a number of crucial requirements that have to be met. These include the following:
- If you use this company structure, you’re limited to having only 50 shareholders who aren’t employees under section 113 of the Corporations Act 2001(Cth)
- Your company is required to have share capital under section 112(1) of the Corporations Act
- Your company is required to at least have one member/shareholder
- Your company is required to at least have one company director under section 201A of the Corporations Act
- Under section 148(2) of the Corporations Act, your company name must include the words ‘ Proprietary Limited’ or ‘Pty Ltd” at the end
- Your company will be prohibited from taking part in any activities activating the provisions contained in Chapter 6D of the Corporations Act in relation to fundraising
Advantages of being a Pty Ltd company
Operating your business through a Pty Ltd company offers the following advantages:
- Many large businesses still choose to be Pty Ltd companies due to the added privacy compared to being Ltd
- Pty Ltd companies have fewer disclosure obligations, and the information they are required to disclose is only visible to a small group of shareholders
- Pty Ltd companies face fewer regulatory burdens. For example, there is a wide range of reports that need to be submitted to both regulators and shareholders for an Ltd company. These reports don’t have to be submitted by Pty Ltd companies
Example of a Pty Ltd company
James runs a finance-technology startup with four employees and registers himself as a company. James would register for the company with the legal structure “Pty Ltd” in his company name to ensure legal obligations are met.
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What is an Ltd company?
Having Ltd in your company’s name is a great way to signal to investors what the liability of your company is. An Ltd business has limited liability and would convert from a Pty Ltd company if it is listed publicly through an Initial Public Offering(IPO).
For example, a limited-by-shares company structure indicates that the shareholders are only liable for the amount of money they paid for in shares.
The opposite of this structure is a company that is unlimited with a share capital. In this company structure, an investor will be liable for their own investments, but they’ll also be liable for the company’s debts. A proprietary business that has unlimited liability will just display Pty.
Advantages of being an Ltd company
The advantages of using of being an Ltd company include the following:
- There is an increased frequency of capital raising and access
- Ltd companies have limited liability, and owners are personally culpable for any losses from a financial asset perspective
Example of an Ltd company
James’ finance-technology startup has been operating for over six years now, and he wants to expand offices overseas. He understands that he needs capital for this and decides to list publicly on the ASX. In doing so, James would need to change his company name to include Ltd as the ending suffix.
What is a Public Company?
A public company refers to a company that can receive investments from the public through the ASX. Unlike a proprietary company, a public company can have thousands of shareholders who aren’t employees of the company. The primary benefit of having a public company is the greater access to equity funding you will have for your business.
However, a primary disadvantage is that each time a new share is issued, existing shareholders’ ownership decreases. Furthermore, public companies are required to meet higher expectations than Pty Ltd companies, such as reporting requirements and directors duties under the Corporations Act 2001 (Cth).
Public companies can choose to be listed, or they can choose not to be listed on the ASX. Public companies are generally limited by shares (Ltd).
Advantages of a Public Company
Operating your business as a public company offers the following advantages:
- It is relatively easy for public companies to raise capital since they are open to investment
- There is no maximum amount of shareholders for public companies. Therefore the amount of capital a public company can raise is unlimited
- In Australia, companies can trade anywhere
- Companies enjoy lower tax rates than individuals in the highest tax bracket
- Shareholders of companies have limited liability
Example of a Public Company
Some examples of popular public companies in Australia that are listed on the ASX include the following:
What is the difference between a Pty Ltd company and a Pty company?
Pty Ltd companies are proprietary limited companies that must contain Pty Ltd in their name. Whereas Pty companies are unlimited proprietary companies that must contain Pty in their name.
Pty limited companies are companies limited by shares. Therefore each shareholder’s personal liability is limited by their share purchase price. Whereas in Pty companies, shareholders have unlimited liability and can be found to be liable for the debts of the company, despite having already paid for their shares in full.
What are the differences between a Pty Ltd and Ltd company?
The major difference between a private and a public company is that private companies can’t offer shares to the public.
Conclusion
When setting up your company, most companies start out as private companies before they become public companies. You should also be aware that you can only use the terms Pty or Pty Ltd if your business is registered as a company.
If you need further legal advice about company liability and the different types of companies, you should hire a lawyer for legal advice.
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