Small and large pro­pri­etary com­pa­nies redefined

From 1 July 2019, changes to the def­i­n­i­tion of​‘small’ and​‘large’ pro­pri­etary com­pa­nies will affect the report­ing oblig­a­tions of small and medi­um sized enter­pris­es. Asso­ciate, Bill Lo clar­i­fies what it means for your company.

Overview

Under the pre­vi­ous régime estab­lished by the Cor­po­ra­tions Act 2001 (Cth), the thresh­olds for ​‘large’ and ​‘small’ pro­pri­etary com­pa­nies would be sat­is­fied where at least two of the fol­low­ing three require­ments were met: 

Pri­or to 1 July 2019

Accord­ing to the Aus­tralian Trea­sury, how­ev­er, these pre­vi­ous thresh­olds were ​“set at too low a lev­el to appro­pri­ate­ly cap­ture the lev­el at which a com­pa­ny becomes eco­nom­i­cal­ly significant”.

As such, the Cor­po­ra­tions Amend­ment (Pro­pri­etary Com­pa­ny Thresh­olds) Reg­u­la­tions 2018 (Reg­u­la­tions) was intro­duced to dou­ble the thresh­old require­ments. Since 1 July 2019, the thresh­olds are as follows:

From 1 July 2019

What does this mean for your company?

The Cor­po­ra­tions Act 2001 (Cth) impos­es a num­ber of report­ing oblig­a­tions on large pro­pri­etary com­pa­nies, includ­ing the annu­al lodg­ing of a finan­cial report, direc­tors’ report and audi­tor’s report to ASIC. Gen­er­al­ly, small pro­pri­etary com­pa­nies are only required to main­tain suf­fi­cient finan­cial records unless they are direct­ed by ASIC or their share­hold­ers (and in the case of small pro­pri­etary com­pa­nies lim­it­ed by guar­an­tee, mem­bers) to pre­pare finan­cial and direc­tors’ reports.

The changes to the thresh­old require­ments will there­fore relax the report­ing require­ments of those com­pa­nies pre­vi­ous­ly defined as ​‘large’. Indeed, the Aus­tralian Trea­sury esti­mates that some 2,200 pro­pri­etary com­pa­nies will no longer be required to com­ply with the more strin­gent report­ing oblig­a­tions imposed on larg­er com­pa­nies. Sig­nif­i­cant­ly, this is esti­mat­ed to save busi­ness­es approx­i­mate­ly $81.3 mil­lion per year in reg­u­la­to­ry costs.

The Reg­u­la­tions, how­ev­er, will have no impact on the report­ing require­ments of those com­pa­nies which still meet the def­i­n­i­tion of a ​‘large’ pro­pri­etary company.