Proprietary Limited Company – What Does PTY LTD Mean?
You may have noticed that most company names end with Pty Ltd. But what does Pty ltd mean? Pty Ltd is the acronym for ‘Proprietary Limited’. When the name of a company ends with Pty Ltd, it means the company has shareholders with limited legal responsibilities to the company’s debts. As you may already know, it is easier to set up and maintain private companies. That is why they are the most common type of companies in Australia.
The most distinguishing features of a Pty Ltd company are that the company operates privately and doesn’t offer shares to the public. The company owners also have limited ownership and are limited to a maximum of 50 non-employee shareholders.
Corporations Act 2001 (Cth) is what defines companies in Australia. These companies are required to refrain from actions that may require disclosure under Chapter 6D. The clause’s main concern is limiting engagement with more than 50 non-employee shareholders.
Is there a Difference Between Pty and Pty Ltd?
Have you noticed that some company names end with Pty while others end with Pty Ltd.? As you try to answer the question on what does Pty Ltd mean, you definitely need to understand the difference between Pty and Pty Ltd.
The name of a company has to include the status of its liability. The term Pty simply means proprietary. Ltd, on the other hand, means Limited. Adding Ltd to Pty is a way of signaling to the investors the liability of the company. Ltd companies have limited liabilities. For example, the liabilities may be limited by the shares structure. A Pty Ltd must have less than 50 shareholders. When a company only has a Pty at the end of its name, it means it is a proprietary business with unlimited liability.
Why is there a difference between Pty and Pty Limited? When starting a company, it can be hard to choose between creating a private and a public company. That is why most companies start off as private companies and go public as they grow. All in all, it is important to understand that the terms Pty or Pty Ltd can only be used by a business that has been registered as a company.
Why Should You Establish a Proprietary Limited Company?
With about 20,000 new companies being registered each month in Australia, the most common type is the proprietary limited company. This can be attributed to the fact that having a proprietary limited company structure offers remarkable growth options, potential tax benefits and protection from personal liability. Considering proprietary limited companies usually operate with a small pool of investors, most of these companies are usually small to medium sized enterprises and startups.
Over time, as your company continues to grow, you can restructure it into a public listed company. When this happens, the company loses its proprietary limited status. The company will become a publicly listed company. This enables you to raise the capital necessary to achieve a critical growth stage by reaching out to more than 50 shareholders.
The ability to restructure the company from a limited to a public company is one of the reasons proprietary limited companies are so popular. Business owners enjoy the benefits of having a Pty Ltd company when starting up and expand when they find their footing.
What are the Benefits of a Pty Ltd Company?
As you answer the question on what does Pty Ltd mean, you definitely want to know why such businesses exist. The answer is the benefits that come with being a Pty Ltd company. Here are the top benefits.
- Limited Liability
A proprietary limited company is a separate legal entity. This means it is liable for its own debts. If any claims are made against the company, they will only be paid using the assets that are owned by the company. This offers layers of protection for both the shareholders’ and directors’ personal assets.
However, it is important to note that the directors don’t have as much protection as the shareholders. If directors breach their duties or provide personal guarantees to a contract, their personal assets may be exposed.
- Attract Stakeholders
Branding is an often overlooked benefit for creating a proprietary limited company. Unlike sole traders, having a Pty Ltd company can help project a high level of stability and professionalism by having a strong branding associated with your company. Better branding brings better opportunities.
It is a known fact that suppliers, investors and customers love doing business with companies rather than sole traders. Setting up a Pty Ltd company gives the impression that your business operates at a larger and more serious level and thus inspires more confidence in stakeholders. This impression comes in handy when you want to win contracts and tenders.
- Perpetual Succession
A proprietary limited company is its own legal entity. This means it has the ability to exist indefinitely unless it is wound up. If a director or shareholder dies, they can be replaced and the business continues trading. This is unlike a sole trader where a business ceases to exist when the sole owner dies.
All in all, it is good to note that difficulty can arise where there is no shareholders’ agreement and a shareholder dies. When this happens, the shares of the deceased shareholder are given to their next of kin according to the will of the shareholder. If the partnership was a 50/50, the remaining partner can end up owning the business with the relative of their former partner who may not have any interest in the business. A shareholder agreement is needed to stipulate what happens if a shareholder leaves the company or dies.
- Tax Efficiency
Sole traders are taxed at the standard marginal rates which depends on their income level. The rate can be as high as 45%. A company, on the other hand, is taxed a flat rate of 27.5% to 30% regardless of its profits. Moreover, a company can offset tax losses from a business against profits made by another and taxes can be carried forward into the future when the company is more profitable.
- Avoid Conflict
A shareholders’ agreement is created when registering a proprietary limited company. The document provides protection against disputes more so when a shareholder leaves the company. It also regulates the responsibilities and rights of shareholders and the activities of the business such as how shares are issued, divided and how conflicts are resolved.
- Size Doesn’t Matter
Being a proprietary limited company doesn’t limit the size of your company. Your company can operate with any level of turnover or assets. The privacy benefits that come with being a proprietary limited company is the reason even large-scale businesses remain as Pty Ltd.
- Reduced Regulatory Burden
Another benefit is the reduced regulatory burden. When a company is publicly listed, it is required to provide shareholders and regulators with various reports annually. This is not the case with proprietary limited companies. They benefit from limited disclosure obligations.
Registering a proprietary limited company offers the advantages of growth potential, limited liability and tax efficiencies. All in all, it is important to understand that setting up and running a company is expensive, highly regulated and may have some tax disadvantages. Speaking with an experienced accountant will help you understand your options and give you a detailed answer on the question, ‘what does Pty Ltd mean?’
How to Use Pty Ltd?
When operating a proprietary limited company, there are several rules you have to follow. For starters, the company name has to be listed on legal documents including the Pty Ltd suffix. According to Section 144 of the Corporations Act, companies have to display their name prominently wherever they are doing business in a way that is open to the public.
If you don’t want to use the Pty Ltd suffix in daily trading, you have to register a business name with no Pty Ltd suffix. A company can have both a company name and a business name. The company name is the official registered name and is what is used on the legal documents. It must have the Pty Ltd suffix. The business name doesn’t need to have the Pty Ltd abbreviation.
According to Section 165, you can use either Pty Ltd or Proprietary limited. The two can be used interchangeably. It is also okay to use ‘Pty Limited’ or ‘Proprietary Ltd’.
How to Register a Pty Ltd Company in Australia
Setting up a proprietary limited company requires that you register an Australian Company Number (ACN). You can register directly with ASIC or through an ASIC registered agent. The registration fee is $506. As an Australian company you will also be required to pay an annual fee on the anniversary of your company’s registration.
Now that we have answered the question on what does Pty Ltd mean, it is up to you to determine if the option is ideal for you or not. Liaising with an experienced accountant will help you understand your options better.