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Legislative changes to what is considered a ‘large’ proprietary company.

25 Jul 19

What is the change?

The federal government has passed the Corporations Amendment (Proprietary Company Thresholds) Regulations 2019 (‘the new regulations’). The new regulations form part of the Corporations Act 2001 (‘the Act’). In essence, the new regulations increase the threshold for determining whether a company is a ‘large’ proprietary company, for the purposes of the Act. This article will explore what the changes are, how this may impact your company and why these new regulations have been introduced.

Currently, through s 45A of the Act, a proprietary company is ‘large’ if meets two of the following requirements for a given financial year:

  1. The company’s consolidated revenue exceeds $25 million;
  2. The company’s consolidated gross assets exceeds $12.5 million; and
  3. The company has 50 or more employees. [1]

These thresholds have not been changed since 2007. Importantly, the new regulations will now double these thresholds. As such, a proprietary company will now be considered ‘large’, if in a given financial year:

  1. The company’s consolidated revenue exceeds $50 million;
  2. The company’s consolidated gross assets exceeds $25 million; and
  3. The company has 100 employees or more. [1]

These new regulations will take place from 1 July 2019, in other words, its impact will effective for the 2019-2020 financial year and following financial years, subject to review. The next section will highlight the potential ramifications for proprietary companies.

How this may impact your company?

For the most part, the new regulations reduce the financial reporting obligations and costs placed most proprietary companies and so will be a positive improvement for them.  If a company meets the threshold to be considered a ‘large’ proprietary company then it must provide the following audited financial reports:

  1. Annual financial report.
  2. A director’s report;
  3. Auditor’s report; and
  4. A whistle-blower policy must be put in place.

As such, if your company in 2019/2020 is below the threshold proposed by the new regulations, you are no longer required to provide the mentioned reports. To revisit the point made earlier, it is likely that this will be welcomed by most companies as the Treasury anticipates that approximately one third of the proprietary companies that lodged the prescribed financial reporting with ASIC in 2017-2018 will not need to do so under the new regulations.[2]

It is important to note that companies are still required to keep financial records and lodge or audit financial reports if directed by ASIC, irrespective of whether they meet the thresholds set out by the new regulations.

Why the change?

As it was noted above, the threshold for determining what is a ‘large’ proprietary company was not reviewed since 2007. This then asks the question, why is it that after 12 years have the thresholds been increased to double what they previously were?

The Treasury have justified the doubling of the previous threshold to reflect the nominal economic growth through the gross domestic product (‘GDP’). In other words, because the GDP has had strong growth (between 2006-2007 to 2017-2018, the nominal GDP grew 70 per cent), many companies today would meet the previous threshold for what is a ‘large’ company, and consequently, the new regulations have been put in to redefine what a ‘large company’ is.

To this end, the Treasury have increased the thresholds to only place reporting obligations on economically significant companies or ‘large’ companies, in the context of the contemporary economic climate.[3] This subsequently lessens the burden and costs for smaller sized companies with regards to financial reporting.

This article was written by Colin Yuan and Stephen Etkind of Salvos Legal. Salvos Legal is an award-winning social enterprise law firm that is experienced in not-for-profit, all areas of commercial, property and migration law. All of its net earnings from its services are used to fund the Salvos Legal (Humanitarian) which provides pro bono legal services to the community.

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