Difference between public limited company and private limited company Essay

Executive SummaryTeds incarnate Services is the business run by Ted. He is a touch on trader. He wants to convert his business from sole trader to companion to pass water the benefit of peculiar(a) liability and other benefits as well. He wants advice for forming a beau monde which is the most conquer for him. proprietorship confederation un especial(a) by sh ars expectant, prevalent familiarity untrammelled by sh bes capital, everyday play along peculiar(a) by stock-purchase warrant and common gild with no liability argon the companies which argon non appropriate for Ted. As, the companies sop up un hold in liabilities which Ted do not want to establish and overly no liability familiarity is do for mining purpose only. Whereby, branded come with special by sh ars and existence corporation confine by shargons ar the companies which spate be aim up by Ted. If association wad easily get tumescent capital, put on erect ability to borrow mvirtuosoy from mankind, possibly describe on stock ex adjustment accordingly Ted roll in the hay form the public corporation limited by shargons. Whereas, low-pitched business like Ted are unlikely to meet these abilities and want to convert to ships ac political party. So, the most appropriate oddball of gild Ted could form is proprietary company limited by shares. This can in like manner be converted to public company limited by shares in the future if Ted wants to set off his company.1. Introduction gild is defined as a legal entity which is allowed by legislation and permits a group of tribe to apply to the government for an independent organization as stockholders who can then target on pursuing objectives, and em posted with legal rights (Modern federation legal philosophy 1997). wagess of company are it is a separate legal entity it can fulfill and can be sued by others, protection of as stage sets and so on whereas conglomerate legal formality, more(prenominal) p iece of musicwork, costly to run and establish are slightly of the disadvantages of company (The Advice Spot 2010). The purpose of writing this report is to advice Ted most forming the company. as well as, advising him about the most appropriate char pieceercast of company which he can form.2. get over of registering a companyCertain requirements should be followed to register a company. archetypal of all, a person must lodge an exertion with Australian Securities and investment bloodlines Commission (ASIC) development the prescribed form s117 club Act (CA) 2001. function 117(2) (CA) states that the application must state specified information such as the grammatical case of company, the companys name, names and addresses of persons consenting to be members, the address of the company and so on. (Lipton, Herzberg 2001) If the company wants to follow its own time remand then it should also be mentioned by the public company in the application. The crook of shares, cla ss of shares, amount the member is ready to pay, and amount salaried fully or partly should all be mentioned by the company limited by shares or unlimited company on the application. Also, if the public company wants to have a constitution on the readjustment, then a copy of the constitution must be lodged but its autocratic for the public company with no liability. The application must be in the apprised form. Also, the company must have the consents and agreements. (Lipton, Herzberg 2001)After, the requirements are do successfully, ASIC get out issue a certificate of registration and an Australian company number and it also go away have the power according to S124 (1) (CA). S119 (CA) states that company comes into humanity on the day it is registered with the specific name in its certificate of registration (Lipton, Herzberg 2001). This means that the company is a separate legal entity now. It is separate from slew who run and manage the company. 3. Could Ted perform the process of registering the company? Anyone who is above 18 years old can form the company. Additionally, the person should not have any cases of bankrupts and also any offences related to misconduct or ambidextrous activities relating to company. (Finance 2007) This shows that Ted can perform the process of registering the company. Also, its better for Ted to consult a natural lawyer if he has committed a breach of corporate law before setting up the company, for instance, as a director.4. favours and Disadvantages of each font of company.The company is divided into two parts, i.e. branded company and general company which is discussed down the stairs.4.1 Proprietary CompanyProprietary company is a company where the broth is maturated by issuing shares to known people such as friends, employees and relatives. In this theatrical role of company, there should be at least one director who is resident of Australia, not more than 50 non-employees shareholders and minimum 1 membe r s114 (CA). Also, S148 (CA) states that company should have the abbreviation of either Proprietary or Pty to be recognized as proprietary company. (Lipton, Herzberg, chisel 2000) Proprietary company is divided into two parts which have been discussed below with its advantages and disadvantages.4.1.1 Company limited by sharesA company limited by shares is a type of proprietary company where shareholder only pays amount non-paying on shares when company makes a call, i.e. they have fully and partly paid shareholders. Advantage of this company is that the shareholders are provided more protection when the case of liability rises. Whereas, more paper work, complex legal formalities, high cost to establish are some of its disadvantages. (Finance 2007)4.1.2 Company unlimited by shares capitalA company unlimited by share capital is the company where the shareholders are fully responsible for all the debts of the company. Advantage of this company is that it has separate legal entity, ca n sue and be sued and so on whereas unlimited liability is the major disadvantage. (Lipton, Herzberg, Welsh 2010)4.2 Public CompanyPublic company is the company where the fund is raised by issuing shares to general public by using disclosure document prospectus. In this type of company, there should be at least 3 directors where minimum 2 should be the resident of Australia and also can have infinite number of shareholders and members. Also, S148 (5) (CA) states that public company has no distinguishing name. (Lipton, Herzberg 2000) Public company is divided into four parts which have been discussed below with its advantages and disadvantages.4.2.1 Company limited by sharesSection 9 (CA) states that a company limited by shares is the company where shareholder only pays the amount owing(predicate) on shares when company makes a call. There are two types of members who have paid the amount of shares either partly or fully. low s515 (CA) a member is liable(p) to yield to the compa nys debts and liabilities and the costs, charges and expenses of the winding up. Advantage of company limited by shares is that the creditor does not need to sell the personalized property to pay the debt of the company. Whereas, the disadvantage is that it has more legal formalities, more paper work and so on similar to other companies. (Lipton, Herzberg 2001)4.2.2 Company unlimited by shares capitalCompany unlimited by shares capital is the type of the company where the shareholders are fully responsible to pay for all debts of company. mention as a separate legal entity, large capital, highly schoolmaster persons engaged in the company is some of the benefits of company unlimited by shares capital whereas unlimited liability is one of the major disadvantages. (Redmond 2000)4.2.3 Company limited by guaranteeA company limited by guarantee is a company whose members have their liability limited to the amounts that they have on a lower floortaken to contribute to the property of the company in the event of it being wound up. insure companies retain the advantages of being legal entities with the liability of the members limited to the amount of guarantee. Also under section 115 (CA), only a company limited by guarantee may obtain a licence to broadcast with the word Limited at the end of its name. Whereas, the drawback of this type of companies is that it does not raise initial or working capital from its members. (Redmond 2000)4.2.4 No liability CompanyA no liability company is a company where shareholders are not bound to pay the amount owed to company when company makes a call. Advantage of being this company is that there will be no liability for the shareholders, whereas the drawback of this company is that only mining can be do if no liability company is formed. (Redmond 2000)5. What might be the most appropriate company to form, and can this be changed at a later spot of time?5.1 Most appropriate type of company.5.1.1 Proprietary Company limited by sharesThis company is one of the appropriate companies for Ted. The shareholders are only liable to pay the debt of the company when company makes a call and also shareholders are more protected. Also, proprietary company limited by shares is good for the small family business (Finance 2007).5.1.2 Proprietary Company unlimited with share capitalProprietary company unlimited with share capital is not appropriate company for Ted. As, in this company shareholders are fully responsible to pay the debt. Whereby, Ted cute to convert to company because of limited liability.5.1.3 Public Company limited by sharesIt is one of the companies which attract more number of shareholders. For Teds business activity, company limited by shares is also one of the appropriate companies as the shareholders will only be liable to pay for the amount unpaid on shares when the company makes a call.5.1.4 Public Company unlimited by shares capitalTed wants to convert his sole trader business to company bec ause of the limited liability. hardly company unlimited by shares capital has unlimited liabilities. Also, these sorts of company are established by professionals. So, it does not suit for the Teds business.5.1.5 Public Company limited by guaranteeA company limited by guarantee is convenient for clubs, charities and other non-trading companies whose capital is raised by members fees, donations, subscriptions and fond activities (Lipton, Herzberg, Welsh 2010). Whereas, Ted Company is a trading companies and profit oriented, which means choosing company limited by guarantee is the wrong decision to be taken.5.1.6 Public Company with no liabilitySection112 (3) (CA) states that a no liability company is prohibited fromengaging in activities that are outside its mining purposes objectives (Lipton, Herzberg, Welsh 2010). This reflects that no liability company is not appropriate type of company to be formed by Ted.5.2 Can certain company be changed at a later point of time?Proprietary c ompany limited by shares and Public Company limited by shares are both appropriate for the Teds business. In Future, if Ted wants to convert from proprietary to public or either from public to proprietary, he can convert it.5.2.1 Proprietary to Public CompanyCorporation act allows proprietary company limited by shares to convert to public company limited by shares by deviation a special resolution to this effect and by dwell an application with ASIC s162 (CA) and s163 (CA). Also, the company should omit the word Proprietary from the company. Then the company is issued with an amended certificate of registration and becomes a public company. Under s165(CA), if the company has contravened s113 (CA), then ASIC may direct a proprietary company to change to public company. (Lipton, Herzberg, Welsh 2010)5.2.2 Public to Proprietary CompanyCorporation act allows public company to convert to proprietary company by passing a special resolution to this effect and by lodging an application wi th ASIC s162 (CA) and s163 (CA). The special resolution must alter the company name by including Proprietary or Pty. Also, S113 (CA) states that the proprietary companies to have share capital and a maximum number of 50 shareholder members. (Lipton, Herzberg, Welsh 2010)6. On-going requirementsIf Ted were to set up a proprietary or public company, several more travel would have to be taken from the time the company is officially registered. Firstly, under s286 (CA), a detailed financial record should be kept by Ted. Also, these records should be available for the next seven years. A hour hold must be there under section 251A (CA). Whereby, the minute support consists of the records and resolution of meetings which should be signed bythe director and chairperson of the company. Also, minute should include declaration form which is optional for proprietary and compulsory for public company. Additionally, under s168 (CA) register have to be maintained for members, option holders an d debenture bond holders. As, Ted wants to increase his capital, he should give notice to ASIC of the shares he wants to issue, amounts paid and unpaid on the shares. Likewise, within two months, Ted need to issue share certificates to the holders. Appointing a public tax officer and an appropriate insurance would be advised for Ted. (Lipton, Herzberg, Welsh 2010)7. Liable for the actionsAfter setting up the company, the shareholders, members are not liable for the actions undertaken by the company. The precedent case Salomon v Salomon & Co Ltd (1897) Ac 22, the judicatory trenchant that Salomon was not held liable because the company and he himself are two different business entity doing business together. However, the court will twitch the veil of incorporation if the company is used to perpetuate a fraud, if company is used to avoid an existing legal obligation, situation of agency and so on. Whereby, veil of incorporation is defined as barrier which separates the company on o ne hand and the members, promoters and controllers on the other. (Lipton, Herzberg, Welsh 2000)In the case Re Darby (1911) 1 KB 95, the court decided that Darby was liable for his actions and so the court lifted the veil of incorporation. Also, in the case Gilford Motors Co Ltd v internal (1933) Ch 935, the court held that the Gilford was liable as the company was created for fraudulent purposes. (Lipton, Herzberg, Welsh 2000) Under the case Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480, the court decided that there must be a representation that the agent has the authority, the trio party must be well known that the contract is done on good faith and the contract must have power under memo & articles to make contract. Or else, the person will be fully liable for his/ her activities. (Commonwealth Consolidated Act 2001)8. Restrictions on the sale of shares usually shares are easily transferable. Shareholders have right to buy and sell the shares. Howeve r, the company also can restrict the shareholders totransfer the shares. S1072 G (CA) states that the director of proprietary companies have right to refuse to transfer shares. Also, S1072 F (CA) states that the public company have limited right to restrict transfer of share. (Commonwealth Consolidated Acts 2001) This shows that Ted can restrict on the sale of shares by following the S1072 G (CA) or S1072 F (CA). He might do this to be the majority shareholder of the company. He can maintain the less chances of takeover by the third party. Also, if he restricts the transfer of shares then the business would remain in the familys hand only.9. Recommendation and ConclusionType of business run, individual circumstances, the take of control and financial situation are the things which should be considered before choosing which type of company to set up. For example, if the company can easily get a large capital, have easy transfer of share ownership, have good ability to borrow money f rom public and possibly list on the stock exchange, then choosing public company with limited shares wont be the wrong decision for Ted. (Finance 2007) However, many small businesses like Teds are unlikely to require these abilities and are more willing to set up a company structure for family tax planning. Likewise, company also provides more benefits than sole trader, i.e. limited liability, recognition, enough flexibility and so on. This shows that the appropriate form of company would be proprietary company limited by shares for Ted. To conclude, a proprietary limited company is the most common type of company set up by small businesses. So, Ted can look at proprietary company with limited shares. Also, in future if he wants to expand his business, he can go through some legal formalities and can convert to public company limited by shares. heed of ReferencesAdams, M, 2002, Essential Corporate Law, 1st edn, LondonCommonwealth Consolidated Act, 2001, Corporation Act 2001, viewed 30 April 2012, Davies, P 1997, Gowers Principles of Modern Company Law, sixth edn, London Finance, 2007, Proprietary limited company, viewed 30 April 2012, Lipton, P, Herzberg, A, 2000, taste Company Law, tenth edn, Sydney, New South Wales Lipton, P, Herzberg, A, 2001, Understanding Company Law, 9th edn, Sydney, New South Wales Lipton, P, Herzberg, A, Welsh, M, 2010,Understanding Company Law, 15th edn, Sydney, New South Wales