Proprietary limited companies are the most common company structure in Australia and account for 98.5% of all companies. Generally, they are the most appropriate company structure for small businesses.
A Proprietary Limited company (also known as a Pty Ltd company), cannot raise capital from the public, and is restricted to a maximum 50 non- employee shareholders. Shareholders personal assets are protected due to the companies limited liability status.
The advantages of operating a business through a proprietary limited company include:
- 30% tax rate (standard company tax rate).
- 27.5% tax rate for companies with a turnover less than $50m pa (falling to 25% in 2021/22).
- Limited liability – this ensures the shareholder’s liability is limited to the capital invested in the company.
- Ability for investors to pool their investment funds together.
- Ability to introduce new shareholders, and change current shareholders.
- Easier succession planning (as companies have perpetual succession).
- Extra tax saving opportunities/strategies. For example, the owners' private motor vehicles can be salary packaged by a company, but not a sole trader.
- Privacy - the ability to keep the company’s owners (shareholders) secret.
The main disadvantages of operating through a company are:
- It doesn’t receive the 50% general capital gain discount like individuals.
- Extra compliance and regulatory costs (i.e. annual ASIC fee of $263).
- Directors legal obligations and duties need to be considered.