The words Pty and Ltd are commonly seen on company names and documents, however the meaning behind these terms is not as well known. Within this article we will break down the terms used to identify different company structures, as well as the legal ramifications that come from each expression.
All registered companies must indicate whether they are a proprietary (Pty), limited (Ltd) or no liability company in their name, documents and other correspondence. Failure to do so is an offence and the company will be liable to an investigation by the Australian Securities and Investments Commission (ASIC). Note that only companies registered under ASIC are required to use these terms, not businesses.
Pty is an abbreviation for the word proprietary and when used by a company, means that it is operating as a private company. An example of what this would look like is “Company Pty”. If a company is trading as a pty, there are certain features that represent this:
- Only a limited number of shareholders can own shares in the company
- The company can only have a maximum of 50 shareholders
- The company is only required to have one director
- It cannot be listed on the Australian Stock Exchange (ASX) and is not able to offer shares to the general public
Ltd in the context of proprietary limited (Pty Ltd) refers to limited liability, and this means that a shareholder’s legal responsibility towards a company’s debts and liabilities are limited to the number of shares that they own. In the circumstance where the company becomes insolvent, shareholders will only be liable to lose the money they used to purchase their shares. If a shareholder has only partly paid for their shares, they will be required to pay the remaining amount they owe on those shares.
By contrast, a company can also decide to be unlimited – this is referred to unlimited by share capital. In this case, shareholders can be fully liable to the debts of the company, even if they have fully paid for all their shares. When a company is unlimited by share capital, they will only display the term Pty.
What is a Proprietary Limited Company?
Pty Ltd companies are the most common types of companies in Australia and serve as an effective company structure for small to medium sized companies. They are easy to set up and are considered low maintenance compared to other structures. Other features that are indicative of a Pty Ltd company include:
- They cannot offer shares to the general public
- Directors are protected from any liability of the company’s debts
- There are less disclosure obligations for the company
- Pty Ltd companies face less regulatory burden
Public companies share similarities to Pty Ltd companies, however because they are public, are also held under more legal scrutiny and have more obligations to fulfil than private companies. The common features of public companies include:
- Most companies will not be proprietary, meaning they are able to sell their shares to the general public as a means of raising capital – this means they can be listed or unlisted on the ASX
- They must have at least three directors
- Public companies are subject to stricter regulations
Other things to consider
On the topic of regulation, companies are regulated differently depending on their size. In order to determine whether or not a company is considered ‘small’ or ‘large’, the following test is used:
- The consolidated revenue for the financial year of the company and any entities it controls is $50 million or more
- The value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $25 million or more, and
- The company and any entities it controls have 100 or more employees at the end of the financial year.
Two out of the three requirements must be met in order for a company to be considered large. If these criteria are satisfied, the company is expected to fulfil additional reporting requirements such as lodging a financial report and a director’s report every financial year.
All registered companies must include the words ‘Limited’, ‘No Liability’ or ‘Proprietary’ in its name, depending on what type of company it is. Failure to comply with this requirement will leave the company liable to investigative action from ASIC.
Pty stands for proprietary and refers to private companies. Ltd refers to limited speaks to the type of liability a company has. Pty Ltd companies are the most common form of company structure within Australia and it is common for companies to begin as private, and convert to a public company when they want to grow and raise more capital.