A small company is usually a business that is set up as a company but stays modest in size — few employees, modest revenue, and modest assets. In everyday talk, that is all the phrase means. In law, though, it has a much more precise meaning: a “small proprietary company” is a specific category under the Corporations Act, and whether a company falls into it affects its reporting and audit duties. This guide explains both meanings in plain language, so you can tell which one someone is talking about. The official ASIC website is the best place to double-check the current company rules before you rely on them.
Quick answer: what is a small company?
In short, a small company is a proprietary company (usually a “Pty Ltd”) that does not meet the size tests for a large proprietary company. A proprietary company is classed as large for a financial year if it meets at least two of these three tests, measured on a consolidated basis (the company plus any entities it controls): consolidated revenue of $50 million or more, consolidated gross assets of $25 million or more, or 100 or more employees. If it does not meet at least two of those tests, it is a small proprietary company for that year. Outside that legal test, people often just use “small company” loosely to mean any small business run through a company structure.
First, what is a company?
A company is a separate legal entity. That is the key point, and it is what makes a company different from simply “doing business”. A company can own assets, enter contracts, employ staff, and take on debt in its own name. Its owners are its shareholders, and its day-to-day management is handled by its directors.
Most small businesses that incorporate choose a proprietary company, usually a proprietary limited company — the “Pty Ltd” you see at the end of so many business names. A proprietary company must be limited by shares or be an unlimited company with share capital, have no more than 50 non-employee shareholders, and not do anything that would require disclosure to investors under Chapter 6D of the Corporations Act (with limited exceptions). It needs at least one director, and at least one director must ordinarily reside in this country.
A business, by contrast, is the activity itself: selling products, providing services, and invoicing customers. A business can be run as a sole trader, a partnership, a trust, or a company. So every company runs a business, but not every business is a company. That distinction matters, because the legal duties, tax treatment, and paperwork depend on the structure, not just on the size of the operation.
The legal definition: small proprietary company
Under the Corporations Act, proprietary companies are divided into “small” and “large” each financial year. The test is a two-out-of-three test, and it is applied on a consolidated basis — so you count the company and any entities it controls together, not just the parent company on its own.
A proprietary company is large for a financial year if it satisfies at least two of the following:
- Consolidated revenue for the financial year of $50 million or more.
- Consolidated gross assets of $25 million or more at the end of the financial year.
- 100 or more employees at the end of the financial year, counted by headcount across the company and the entities it controls.
If it does not satisfy at least two of those tests, it is a small proprietary company for that year. In practice, most newly registered proprietary companies are small proprietary companies, because they are well below all three thresholds.
Note that the test is reassessed every financial year. A company can be small one year and large the next if it grows past two of the thresholds, and it can move back if it shrinks below them. Growth planning should therefore include a check of which side of the line the company will fall on.
Why older articles show different numbers
If you search online, you will still find articles saying a small proprietary company means revenue under $25 million, assets under $12.5 million, and fewer than 50 employees. Those were the old thresholds. From 1 July 2019, the thresholds were doubled to the current $50 million, $25 million, and 100 employees. Older guides that were never updated still show the pre-2019 figures, which is a common source of confusion. When you check a source, look for the date and whether it reflects the post-2019 thresholds.
Small company vs small business: not the same thing
People often use “small company” and “small business” as if they mean the same thing, but they answer different questions. “Small business” describes the size of a business activity, and different bodies draw that line in different places for different purposes. For example, the tax definition of a small business entity turns on aggregated turnover of less than $10 million, while employment-law rules use a headcount of fewer than 15 employees. “Small company”, in its legal sense, describes the size category of a particular legal structure — a proprietary company — under the Corporations Act tests above.
That means a business can be small in one sense and not in another. A company with 20 employees and $6 million in revenue would comfortably be a small proprietary company, but it would not count as a small employer under the 15-employee employment-law line. Equally, a sole trader with no employees is running a small business but is not a company at all, so the small proprietary company test does not apply to them. Always ask which definition is being used before you assume a concession, exemption, or obligation applies.
What being a small proprietary company usually means in practice
The main practical difference is financial reporting. Most small proprietary companies do not have to prepare, audit, and lodge annual financial reports with ASIC. Large proprietary companies generally must prepare, audit, and lodge financial reports and directors’ reports each financial year.
There are important exceptions, though. A small proprietary company can still be directed to prepare and lodge reports — for example, by ASIC, or by shareholders holding at least 5% of the votes. Foreign-controlled small proprietary companies can also face reporting and audit obligations unless relief applies. So “small” does not mean “no obligations at all”.
Every company, small or large, still has ongoing duties. These include keeping ASIC details up to date, paying the annual review fee, keeping accurate financial records, maintaining registers, passing a solvency resolution, and meeting director duties under the Corporations Act. Tax, employment, consumer-law, and privacy obligations apply separately and do not disappear just because a company is classed as small.
Examples: how the two-out-of-three test works
It helps to see the test in action. Remember: a company is large only if it meets at least two tests. Meeting just one test is not enough.
- A two-person design studio with $800,000 in revenue, $200,000 in assets, and 2 employees meets none of the large tests. It is a small proprietary company.
- A growing wholesaler with $60 million in revenue but only $10 million in assets and 40 employees meets only one large test (revenue). It is still a small proprietary company for that year.
- A larger manufacturer with $55 million in revenue, $30 million in assets, and 80 employees meets two large tests (revenue and assets). It is a large proprietary company, even though its headcount is below 100.
- A labour-heavy services company with $20 million in revenue, $5 million in assets, but 120 employees meets only one large test (employees). It remains a small proprietary company for that year.
These examples show why you cannot judge size from a single number. Revenue alone, headcount alone, or assets alone never decide the category — it is always the combination.
Small company vs sole trader, partnership, and public company
A sole trader is one individual running a business in their own name. There is no separate legal entity, so the person and the business are legally the same, and personal liability is unlimited. A partnership is two or more people carrying on a business together, again without a separate legal entity unless a company or trust is involved.
A company, by contrast, is its own legal person, which generally limits shareholders’ liability to the amount unpaid on their shares — although directors can still be personally liable in certain situations, such as breaching their duties or trading while insolvent. That separation is one of the main reasons growing businesses incorporate, along with credibility with customers and investors and an easier path to bringing in co-founders or selling the business later.
A public company is different again: it can offer shares to the public and is subject to heavier disclosure and governance requirements. Most small businesses do not need a public company structure. The proprietary company is the standard choice for a small, privately owned business.
Do you need a company to be a small business?
No. Many small businesses start as sole traders because that structure is quick, cheap, and simple to run. Incorporating adds setup costs, ASIC fees, and ongoing record-keeping, so it only makes sense when the benefits — limited liability, separation of personal and business assets, credibility, or plans to raise capital or bring in partners — outweigh those costs. It is common to start unincorporated and incorporate later as risk, staff numbers, or revenue grow. Because the choice affects tax, liability, and paperwork, it is worth getting advice from an accountant or lawyer before you lock it in.
Common questions
Is a small company the same as a Pty Ltd?
Not quite. “Pty Ltd” tells you the company is proprietary and limited. “Small” tells you its size category under the two-out-of-three test. Most Pty Ltd companies are small proprietary companies, but a Pty Ltd can become large if it grows past two of the thresholds.
How many shareholders can a small proprietary company have?
No more than 50 non-employee shareholders. Employee shareholders and certain crowd-sourced funding shareholders do not count toward that limit in the same way, but the 50-shareholder cap is the headline rule for a proprietary company.
Does a small company need an audit?
Generally no, unless it is directed to prepare and lodge audited reports, or a special case such as foreign control applies. Even without an audit, the company must still keep proper financial records.
Can a small company have an ABN and an ACN?
Yes. A company receives an Australian Company Number (ACN) when it is registered with ASIC. It will also generally have an Australian Business Number (ABN) for tax and invoicing purposes. The ACN identifies the company itself; the ABN identifies the business for tax purposes.
What happens when a small company becomes large?
It takes on the heavier reporting duties of a large proprietary company for that financial year: preparing, auditing, and lodging financial reports and a directors’ report, unless relief applies. That is why fast-growing companies should plan their reporting systems before they cross the thresholds, not after.
The bottom line
A small company, in everyday language, is just a modest-sized business run through a company. In law, it means a small proprietary company: a proprietary company that does not meet at least two of the large-company tests — $50 million in consolidated revenue, $25 million in consolidated gross assets, or 100 employees. Knowing which meaning applies, and checking the current thresholds rather than an outdated guide, will save you from assuming a reporting exemption or obligation that does not actually apply to you.
This article is general information only and is not legal, tax, or financial advice. Company rules depend on your circumstances, so check the current ASIC guidance or speak with a qualified adviser before making a decision about your structure.
