98 Accounting: Business Reporting for Decision Making
About 99 per cent of businesses trading in Australia are SMEs and SMEs employee about 70 per cent of
the Australian workforce (SME Association of Australia 2011).
Private companies are largely family owned, and include entities such as plumbing supplies and
kitchen companies. Proprietary companies are denoted by the words ‘Pty Limited’ or ‘Pty Ltd’ in their
names and, as the words imply, such entities cannot offer their shares to the public. The definition of
proprietary means ownership, hence Pty Ltd means ownership limited. A proprietary company is rela-
tively easy to set up — it can be done for as little as $1000. Proprietary companies have at least one
shareholder but no more than 50, and may have one or more directors. Small proprietary companies do
not have to prepare audited financial statements, but large proprietary companies must lodge audited
financial statements with ASIC.
Illustrative example 3.3 lists some of the benefits and issues involved in forming a company.
ILLUSTRATIVE EXAMPLE 3.3Setting up Coconut Plantations Pty Ltd
Joanne (Jo) Geter commenced her own company known as Coconut Plantations Pty Ltd on Queensland’s
Sunshine Coast in August 2016. During the previous ten years, Jo had worked a number of part-time
jobs in food, fashion and homeware shops in Queensland. Whilst at university studying for her Bachelor
of Arts degree, Jo had developed a keen interest in sustainable materials and had attended workshops
on manufacturing such products.
After chatting to her parents, Jo decided that the best business strategy for her would be to
establish a small business manufacturing her own sustainable products with the common ingredient,
coconut. Her idea was to manufacture coconut candles, soaps, and dishwashing and clothes
washing detergents. Coconut Plantations Pty Ltd would manufacture its own products using sustain-
able materials and sell its goods to wholesale traders throughout Australia and New Zealand. Down
the track, Jo would love to export her coconut-based products overseas and would also consider
online trading.
Jo decided to commence operations as a proprietary limited company because she knew this was
the most efficient model for her business needs. She wanted to limit responsibility for her personal
debts, and she also wanted to broaden her business activities through the additional avenues that come
from incorporating a business.
To set up the business, Jo had to pay the costs of registering the company (legal fees, government
fees), advertising, website development, professional indemnity insurance and membership of fashion
industry associations. She also had to purchase Quicken accounting software for bookkeeping and
reporting.
Every three months, the company must lodge its business activity statement (BAS) with the ATO.
(Entities use the BAS to report their business tax entitlements and obligations to the tax office.) If the
company has paid more GST than it has received from its customers, then it will receive a refund from
the ATO. The company must also complete a tax return at the end of each financial year.
Jo does not regret undertaking the proprietary limited form of business structure. While there were
initial start-up costs and a fair bit of time involved in setting up the company, the company form has had
its advantages, especially limited liability. The company has subsequently secured a number of high-end
accounts and is currently broadening its market into Australian regional areas.Public companies
Table 3.1 illustrated four types of public company:
- public companies whose capital is limited by shares
- public companies whose share capital is limited by guarantee
- public companies which are no-liability companies
- public companies whose share capital is unlimited.
Each of these will now be explained in more detail.