Key Features of a Proprietary Limited Company
A Proprietary (Private) Limited Company in Australia is a company type that is set up to help protect its owners from losses. It is usually set up when three or fewer people own and manage the business. It is distinguished from a public limited company as it is not listed on the stock exchange and does not offer shares to the public.
Key features of a proprietary limited company include:
- Limited Liability: The members of the company are not liable for any losses that the business sustains. This provides the owners a protection from risk.
- Structure: A proprietary limited company is a separate legal entity, distinct from its members. This makes it easier to raise capital and simplifies compliance. It also prohibits the company from being liable for any actions of its members.
- Income Tax: Profits are taxed as personal income. This helps to maximise the owners’ investment without paying the company tax rate.
Pros and Cons of Forming a Proprietary Limited Company
A Proprietary Limited Company brings several advantages, but they come with significant obligations as well. It is important to understand all the pros and cons of forming a proprietary limited company so that one can make an informed decision.
Pros of Forming a Proprietary Limited Company:
- Protection from Risk: As mentioned earlier, the limited liability feature of a Proprietary Limited Company protects its owners from potential risks and ensures that they do not have to use their personal assets to pay for losses.
- Raising Capital: A Proprietary Limited Company has the ability to raise capital using shares. This allows the business to expand without risking its owners’ personal assets.
- Tax Benefits: Profits are taxed as personal income and this helps the owners to maximize their investment, without having to pay the company tax rate.
Cons of Forming a Proprietary Limited Company:
- Commitment: Registering a Proprietary Limited Company requires significant commitment from its members as it brings with it several legal and financial responsibilities.
- Additional Costs: Setting up a proprietary limited company comes with additional costs such as accounting fees, filing fees, and more.
- Record Keeping: Proprietary limited companies have to keep accurate financial records and file them with the regulatory body.
How to Establish a Proprietary Limited Company
Creating a Proprietary Limited Company in Australia requires a few steps, as outlined below:
- Choose a Name: The first step is to choose a unique name for the company that does not infringe on any copyrights or trademarks.
- Register the Business with the Regulatory Body: All businesses in Australia must register with ASIC (Australian Securities & Investments Commission) to comply with the law and open a company.
- Assign a director: A director of a company must be at least 18 years old. They are responsible for the day-to-day running of the business and ensuring compliance.
- Appoint the Shareholders: Shareholders are the members of the company who have invested in shares and can be individuals or companies.
- Open a Bank Account: Once the company is registered, a bank account must be opened in the company’s name.
- File Annual Returns: Proprietary limited companies are required to file annual returns with ASIC.