Companies and Business Structures

When you think of a business, you might picture the owner, but many businesses are a distinct legal entity called a company. In law, a company is considered a separate “body corporate,” which is different from its owners. This means a company can do many of the same things a person can do, such as:

• Entering into legal contracts.
• Suing or being sued.
• Buying and selling assets, like machinery and real estate.
• Hiring and firing personnel.

The biggest advantage of a company is limited liability. This is a key difference from other business structures like sole proprietorships or partnerships. With a company, the owners are not personally responsible for the company’s debts. This means their personal assets, such as their home or car, cannot be used to pay off the company’s debts.

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Public vs. Private Companies

Companies in Australia are primarily divided into two types: public and private.

• A private company is a business with a limited number of shareholders, typically capped at 50, and its shares are not available for sale to the general public. Private companies are not listed on a public stock exchange, and their name will usually end with “Pty Ltd” (Proprietary Limited).
• A public company is one where anyone from the public can buy shares and become a part-owner. Public companies are listed on a securities exchange like the ASX, making their shares easily tradable. Their names typically end with “Ltd” (Limited).

The “Ltd” in a company’s name signifies that the liability of its shareholders is limited. This means that if the company goes bankrupt, the shareholders’ losses are limited to the value of their investment in the company. Their personal assets are protected.

A special type of public company is the No Liability (NL) company, which is exclusively used by mining companies in Australia. The “NL” designation means that shareholders have no liability for any unpaid amounts on their shares, which is a key difference from other limited companies.

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Other Business Structures

It’s important to remember that companies are not the only type of business structure in Australia. In fact, most businesses don’t issue tradable shares. These include:

• Sole proprietors, where one individual owns and controls the business.
• Partnerships, where two or more people own and operate the business together.
• Cooperatives, which are owned and run by their members.

In all of these structures, the owners have unlimited liability, meaning they are personally responsible for the business’s debts.

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