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Australian Business Entities

Important Notice

The information below gives an overview of some common features and differences between various Australian business entities. It does not cover the whole of the relevant laws. The information is not a substitute for professional advice and should not be relied on as legal advice.

Introduction

A business entity is an incorporated body that conducts commercial activities for the economic benefit of its shareholder members. Three main types of business entity can be formed in Australia -

a distributing co-operative.
a proprietary company.
a public (listed and unlisted) company with shares.

All these entities have common features, as well as some important differences.

Common features

Legal capacity of a natural person.

Shares are issued to the owners of the entity.

Shareholders can be individuals and/or corporations.

Shareholders have limited liability.

Shareholders elect a board of directors to manage the business of the entity.

Directors have fiduciary and common law duties.

Surplus funds (if any) on a winding up are distributed in proportion to shares held by each shareholder.

Major differences

Feature	Distributing co-operative	Proprietary company	Public company with shares
Jurisdiction	State government.	Commonwealth government.	Commonwealth government.
Governing legislation	Co-operatives National Law.	Corporations Act.	Corporations Act.
Ownership of entity	Persons who use its services.	Small business investors.	Public investors.
Purpose of entity	To serve the needs of its members. To increase income for business members. To market goods and services of members. To supply goods and services to members.	To attract and serve customers. To provide employment for owners. To earn profits for owners. To increase value of business.	To attract and serve customers. To earn profits for investors. To increase value of shares.
Operating practices	Business done primarily with members.	Business done primarily with public.	Business done primarily with public.
Initial transaction	Purchase or sale is a conditional transaction, with a discount or added payment (rebate) made during or after end of financial year.	Purchase or sale is a complete transaction.	Purchase or sale is a complete transaction.
Minimum to form entity	Five	One, maximum 50.	One
Ownership rights	Tradeable to user members.	Restricted.	Tradeable to public investors.
Control of entity	User members. Democratic control. Vote attached to membership. One member one vote.	Business owners. Majority shareholder control. Vote attached to shareholding. One share one vote.	Investors. Majority shareholder(s) control. Vote attached to shareholding. One share one vote.
Governance	Determined in rules.	Minimum one director.	Minimum three directors.
Raising funds	Member shares. Retained earnings. Debentures to members and public. Bank lenders.	Business owners primarily. Retained profits. Bank lenders.	Shares to public. Retained profits. Debentures. Bank lenders.
Shareholding	Only users can own shares. Total number of shares issued varies with number of members.	Any person can own shares.	Any person can own shares.
Share limit held by any one shareholder	20% of total shares issued.	No limit.	No limit.
Disclosure statement to issue shares?	Yes	No	Only if required by Corporations Act.
Status of profits	Profits belong to user members.	Profits belong to the company.	Profits belong to the company.
Distribution of earnings	Rebates in proportion to patronage. Limited dividends. Bonus shares.	In proportion to shares held. Dividends. Bonus shares.	In proportion to shares held. Dividends. Bonus shares.
Auditing of accounts	Exemption for small co-operatives.	Exemption for small companies.	Annually
Financial year	Any date in a calendar year.	Usually 30 June.	Usually 30 June.
Public inspection of share registers?	No	No	Yes