Understanding the set up of Company Limited by Shares Structure
Do you own a business but are having trouble understanding the complex jargon when it comes to setting up your company? Don't worry; that’s why we are here. Limited by shares company is a popular company structure, and understanding how it works can mean the difference between a successful business and one that fails.
Today, we will explain everything there is to know about setting up a limited-by-shares company and tackling the corporate speak so many of us are intimidated by. Hang tight as we set off on this journey toward corporate greatness!
A company that is limited by shares is a type of company structure that allows its owners to limited liability.
The legal responsibilities of a shareholder in a limited by shares company are different from those of shareholders in other types of companies
Shareholders benefit from having numerous benefits of setting up a company limited by shares
The process for setting up a limited by shares company is relatively simple; however, it's important to ensure that all legal requirements are met
What are companies limited by shares?
A Company limited by share is a type of corporate business structure in which the liability for the company's debts is limited to the value of shares held by shareholders. This type of limitation provides financial protection for shareholders, allowing them to limit their financial risk by not incorporating personal assets, should there be any issues with repaying creditors or other external entities. Since it is a separate legal entity, even the director of the company is not personally liable for the amount owed to the debtors.
Such a company divides the share capital of the company into a certain number of shares that will be issued to shareholders. By purchasing these shares for the given value, the shareholders become the owners of the company. As owners, these shareholders will have the authority to make decisions relating to the company such as electing directors, setting dividends, and bringing in new investors.
A company limited by share is different from a company limited by guarantee. In a company limited by guarantee, the liabilities of its members are limited to the amount each has agreed to contribute to the company’s assets if it is wound up and there is no scope for any stakeholders to gain a controlling interest over the profits or assets of the company. This type of structure is typically used for non-profit activities.
Advantages of a company limited by shares
Now that you are familiar with the basics of a company limited by share, let’s take a look at some of the tangible benefits they can provide to stakeholders of small and large companies:
Increased financial protection for shareholders
By limiting the liability on their investment, a proprietary company provides investors with more security against any potential losses. This means that individual shareholders are generally only responsible for up to the amount they have invested in the company and no more. Thus, proprietary companies offer greater protection to the shareholder's personal assets.
Improved access to capital markets
A Company limited by share typically offers improved access to capital markets which allows them to raise funds more easily than smaller businesses. This makes it easier for these larger entities to expand operations or invest in new products or services.
Easier regulations compliance
As companies grow, so too do the regulations they must adhere to. Proprietary companies are better equipped to handle these stringent regulatory requirements as compared to other business structures due to the presence of an article of association that outlines the purpose and activities of the company.
Interested in starting a private limited company already? Fill out our company setup form and let the experts guide you on the entire process. We’re here to help!
Disadvantages of a company limited by shares
Despite all its advantages, it’s important to consider some possible drawbacks before committing to this type of business structure:
Complicated setup process
One of the biggest obstacles associated with setting up a company limited by shares is the lengthy and complicated process that it requires. Business owners must be prepared to comply with numerous regulations, complete extensive paperwork, and pay multiple fees to get their business off the ground.
Companies limited by shares also require a substantial initial outlay of capital in terms of setup costs, administrative fees, etc. This can be prohibitively expensive for smaller businesses.
Companies limited by shares have much stricter regulations when it comes to things like company name changes or share transfers which can reduce the level of flexibility available to shareholders.
Intimidated by the challenges of starting private companies? Never fear! With business setup experts like Accuratee, the process is easy and stress-free.
Types of companies limited by shares
Companies limited by shares exist in both public and private forms. Private companies are subject to restrictions on the number of shareholders as well as a lack of right to transfer ownership, so they cannot take part in any commercial activities--barring exceptional cases that must be disclosed publicly. These organisations cannot consequently issue securities.
Proprietary companies can vary significantly in size and scope, ranging from large conglomerates dominating the market to small businesses serving local needs.
The difference between proprietary limited companies largely depends on several factors including,
- Number of entities that business controls
Public companies are typically larger than proprietary company, giving them greater access to a range of resources. This also means they have more stringent disclosure and reporting requirements set out by state and federal regulations. All public companies can issue their securities for public sale, with no limitation on the number of shareholders that can be accommodated at any given time, as well as having unrestricted transfer rights for all shares.
Investing in a public company can be an appealing choice for many potential investors. Depending on the status of the company, they can purchase shares from either a listed or unlisted public company. If the number of shareholders who are not employees exceeds fifty, then companies must make sure to inform ASIC and convert their structure to a public company limited by shares.
This is part of the necessary regulations required for protecting these investors as well as ensuring full disclosure and better governance. By completing this process, companies have access to more capital than before and offer opportunities to those interested in investing in them.
How to set up a proprietary company in Australia?
Starting a company limited by shares in Australia requires a few important steps.
- First, you need to choose and register your company name and register it with the Australian Securities & Investments Commission (ASIC).
- Then, you need to prepare documents that formalize the operating structure of your new business such as the constitution, shareholders agreement, and share certificates.
- Following this, you need to apply for an Australian Business Number (ABN) and register for GST, Pay As You Go (PAYG), payroll taxes, or any other relevant taxation.
- Lastly, you should consider other applicable licenses when starting up a business to meet all legal obligations.
Completing these steps will enable you to set up your private company limited by shares in Australia efficiently and effectively.
Proprietary companies are one of the most popular company structures in Australia since neither the shareholders nor directors are personally liable for any obligations or debts when the company experiences financial difficulties. So, if after reading all of this, you're chomping at the bit to set up a company limited by shares then you know where to go- Accuratee! With our help, you'll be in business in no time.
Anyone who's been through it knows that understanding the legislation and paperwork involved can be overwhelming and also time-consuming, so why not get some help in business setup services? You could soon have shareholders instead of housemates and turn even a small idea into something great.
All of that makes a company limited by shares a great business model for those who are looking to expand or stay within certain legal limitations. After all, what's there to lose? You've got the skills and knowledge - now just find out exactly what a company limited by shares is and get ready to catapult your business dreams forward. So make sure you contact Accuratee today and get your dream started!