If you’re building a business in Australia and you’re thinking about big growth (or even just wanting the right structure from day one), you’ll eventually run into a key decision: whether to run as a proprietary company or a public company.
On the surface, both are “companies”. But in practice, they can suit very different goals. A proprietary company (often called a private company) is usually the go-to for small businesses, startups and family businesses. A public company is designed for broader ownership and larger-scale fundraising (and it often comes with heavier governance and compliance obligations).
Choosing between a public or private company can affect everything from how you raise money, to who can own shares, to what you may need to disclose publicly, and even how your business feels to run day-to-day.
Below, we’ll walk you through the differences in plain English, what each structure is best for, and the common legal documents you’ll want in place to protect your business as it grows.
What Is A Proprietary Company (Pty Ltd) In Australia?
A proprietary company is the most common company structure for Australian small businesses. You’ll usually recognise it by “Pty Ltd” at the end of the name.
In simple terms, a proprietary company is a separate legal entity (distinct from you as the owner). That means the company can:
- enter into contracts
- own assets
- employ staff
- owe debts
- sue and be sued
This “separate legal entity” feature is one reason many business owners choose a company structure: it can help manage risk by separating business liabilities from personal assets (although there are important exceptions, like personal guarantees and director duties).
Key Features Of A Proprietary Company
- Private ownership: shares are held privately (often by founders, families, key team members or early investors).
- Limits on fundraising: a proprietary company generally can’t raise funds by offering shares to the general public and is subject to restrictions on shareholder numbers (with some exceptions).
- Less public disclosure: reporting and disclosure requirements are typically lighter than for public companies (though some proprietary companies still have financial reporting obligations, depending on size and circumstances).
- Common for startups and SMEs: it’s often the default structure when you want limited liability and room to grow.
If you’re still early in the journey and you’re setting up your entity, the Company Set Up process is usually where this starts (including deciding directors, shareholders and share structure).
What Is A Public Company In Australia?
A public company in Australia is a company structure designed for broader ownership and (potentially) larger-scale capital raising. A public company may be listed on a stock exchange, but it doesn’t have to be. Some public companies are “unlisted” but still have the public company structure.
The main point is that a public company is generally built to allow shares to be offered more widely (including, in many cases, to the public), and it comes with more governance and compliance obligations than a proprietary company.
Key Features Of A Public Company
- Fewer restrictions on share offers: it can typically support a wider shareholder base and broader fundraising than a proprietary company (subject to the rules around disclosure documents and fundraising exemptions).
- Higher compliance burden: more reporting, governance and disclosure requirements may apply (and these can increase further if the company is listed).
- Designed for scale: typically used when a business is preparing for major investment, broader shareholder bases, or potential listing.
For most small businesses, a public company is not the default option. But it can make sense if your growth plan depends on larger fundraising or broad ownership, and you’re ready to operate with more formal governance.
Proprietary Company vs Public Company: The Key Differences That Matter For Small Business
When we talk to founders and business owners about the proprietary company vs public company decision, the “best” structure usually comes down to a few practical questions:
- How do you want to raise money?
- How many owners (shareholders) will you have now and later?
- How much reporting and governance can you realistically manage?
- Do you want the flexibility to stay private long-term?
Here are the key differences to understand.
1) Capital Raising And Who You Can Offer Shares To
This is often the biggest distinction when weighing up a public or private company structure.
A proprietary company is generally restricted from offering shares to the general public and typically has limits on non-employee shareholders. In practical terms, that usually means you’ll raise money privately (for example, from co-founders, private investors, or sophisticated/professional investors) and you’ll often run tighter shareholder processes.
A public company is generally structured to enable broader fundraising, potentially including offers to the public (subject to compliance requirements such as disclosure documents, unless an exemption applies). If you’re planning a large capital raise, or you want the option to raise from a wide pool of investors, a public company may be part of that roadmap.
That said, many high-growth businesses stay proprietary for a long time and only consider a public company structure much later (for example, when preparing for major fundraising rounds or an IPO pathway).
2) Governance And Ongoing Compliance
Both proprietary and public companies must comply with Australian company law, and directors have serious legal obligations either way.
However, public companies generally operate under a more demanding compliance and governance environment, which can include more formal reporting processes and shareholder communication practices (and, depending on the type of public company and whether it’s listed, additional requirements can apply).
For small business owners, this matters because compliance isn’t just a legal issue - it’s time, cost and operational load. If you’re still building your product, landing clients, and hiring a team, a structure that’s too heavy too early can become a distraction.
3) Ownership, Share Transfers, And Control
If keeping control is important (and for many founders, it is), a proprietary company can be easier to manage because ownership stays within a smaller, private group.
In both structures, you can set rules around share transfers and decision-making - but a proprietary company is often the simpler environment for negotiating and enforcing those rules.
This is where a Shareholders Agreement becomes incredibly valuable. It can set out (in plain commercial terms) things like:
- who owns what (and what happens if someone leaves)
- who makes which decisions
- how disputes are handled
- how shares can be sold or transferred
- what happens if new investors come in
Without clear rules, ownership issues can get messy fast - especially when your business starts gaining value.
4) Public Perception And Growth Signalling
Some business owners consider a public company structure because it can signal scale, credibility or a future listing path.
But it’s important to balance “signalling” with practicality. If you don’t actually need the fundraising flexibility (yet), you might be taking on heavier obligations without a clear upside.
A common strategy is to start as a proprietary company, build traction, then reassess whether transitioning to a public company makes sense as your capital needs and shareholder base grow.
Which Structure Should You Choose: Public Or Private Company?
There’s no one-size-fits-all answer, but you can usually get to a confident decision by thinking about your business stage and growth plan.
A Proprietary Company May Be Right If…
- You’re a small business or startup and want a structure that’s widely accepted, scalable and relatively simple to manage.
- You want to keep ownership private among founders, family, employees, or a small investor group.
- You plan to raise capital privately (rather than making offers to the general public).
- You want flexibility to grow without taking on an unnecessarily heavy compliance burden from day one.
For many businesses, this is the “right now” choice even if the longer-term vision includes big growth.
A Public Company May Be Right If…
- Your fundraising strategy requires broader investment and you need a structure that supports a wider shareholder base and broader share offers (subject to fundraising rules).
- You expect a large shareholder base or want a framework that aligns with significant growth and governance.
- You’re preparing for major capital raising or a long-term pathway that could include listing (depending on your goals and advice).
- You’re ready for heavier governance and you have (or will have) the resources to manage it properly.
If you’re unsure, that’s completely normal. Many business owners start with the simplest structure that supports their plan, then upgrade when the business is ready.
What Legal Documents Do You Need For Either Company Structure?
Whichever side of the proprietary company vs public company decision you land on, the structure alone won’t protect your business. The real protection comes from getting the right legal documents in place early - especially before you take on shareholders, hire staff, or start signing major deals.
Here are some of the key documents we often recommend business owners consider.
- Company Constitution: This is one of the core governance documents for a company, setting rules around internal management. Many companies adopt a Company Constitution to make internal processes clearer (especially where shareholders and directors want more tailored rules).
- Shareholders Agreement: If there is more than one shareholder (or you plan to bring in investors), a Shareholders Agreement can help prevent disputes by setting expectations from the start.
- Employment Contract: If you’re hiring staff, a proper Employment Contract helps clarify duties, pay, confidentiality, IP ownership, and exit terms (and it reduces the risk of misunderstandings later).
- Privacy Policy: If you collect personal information (for example, through your website, customer database, email list, or online orders), you’ll likely need a Privacy Policy that explains how you collect, store and use that data.
- Terms And Conditions / Customer Contract: If you sell products or services, having a clear written agreement helps set the rules around payment, delivery, refunds, limitations of liability, and what happens if something goes wrong. It’s also a practical way to support consistent customer service.
- General Security Agreement (If You’re Getting Finance): If you borrow money or use certain lending arrangements, a lender may require security over business assets. Understanding documents like a General Security Agreement matters so you know what you’re agreeing to and what it means for your business if things change.
Not every business will need every document above on day one. But if you’re growing, raising money, or hiring, getting your legal foundations right early can save you serious time and cost later.
How To Think About Growth: Can You Switch Structures Later?
A common concern we hear is: “If I choose a proprietary company now, am I stuck with it forever?”
In many cases, businesses start as a proprietary company because it fits early-stage needs, then consider restructuring later as the business grows.
But switching structures is not something you want to do casually. Changes can affect:
- shareholder rights and control
- company governance and reporting requirements
- investment terms and fundraising strategy
- contracts with suppliers, customers, and lenders
- your broader risk and compliance profile
It’s also worth remembering that many growth steps can happen within a proprietary structure (for example, issuing new shares to investors, setting up employee equity, or implementing stricter governance) without needing to become a public company immediately.
If you’re planning a significant raise, bringing in multiple investors, or preparing for a larger restructure, it can be a good time to get legal guidance on the sequence of steps and the documents you’ll need.
Key Takeaways
- The proprietary company vs public company decision usually comes down to fundraising plans, ownership goals, and how much compliance your business can realistically manage.
- A proprietary company (Pty Ltd) is the most common structure for Australian small businesses and startups, often offering a practical balance of limited liability and flexibility.
- A public company may suit businesses aiming for broader capital raising and wider ownership, but it typically comes with heavier governance and compliance obligations.
- Regardless of structure, strong legal documents matter - especially a Company Constitution, Shareholders Agreement, Employment Contract, and Privacy Policy as your business grows.
- Many businesses start proprietary and reassess later, but changing structure can have flow-on legal and commercial impacts, so it’s worth planning carefully.
Note: This article provides general information only and does not constitute legal advice. Specific rules and requirements can vary depending on your circumstances, including your shareholder base and fundraising strategy.
If you’d like a consultation on choosing between a proprietary company and a public company (and getting the right documents in place), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
