On 16 November 2018, the Australian Government released the Corporations Amendment (Proprietary Company Thresholds) Regulations 2018 which will double the thresholds for determining what constitutes a "large" proprietary company. This will result in more companies not being required to lodge financial statements with the Australian Securities and Investments Commission (ASIC).
What are the current requirements for lodging financial statements with ASIC?
Public companies, large proprietary companies and some foreign-controlled small proprietary companies are required to prepare and lodge annual financial reports and directors’ reports with ASIC.
However, the law does not require small domestic proprietary companies to prepare financial reports or lodge annual financial reports and directors’ reports with ASIC. In saying that:
- ASIC may require a small proprietary company to lodge financial reports; and
- members of a small proprietary company with at least 5% of the votes can direct the company to prepare and circulate financial reports to all shareholders.
So what is changing?
The Corporations Act currently provides that a large proprietary company satisfies at least two of the following thresholds:
- the consolidated revenue for the financial year of the company and any entities it controls is $25 million or more;
- the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls is $12.5 million or more; and
- the company and any entities it controls have 50 or more employees at the end of the financial year.
The draft regulations propose to increase:
- the annual consolidated revenue threshold to $50 million or more;
- the value of gross assets to $25 million or more; and
- the maximum employee size to 100 employees or more.
These increases will result in fewer companies being required to lodge prepare and lodge annual financial reports and directors’ reports with ASIC as a matter of course.
Why are these changes proposed?
The current thresholds have not been reviewed since 2007. The Australian Government has released the proposed regulations to ensure that:
- the thresholds keep pace with economic growth;
- financial reporting obligations are targeted at larger entities; and
- regulatory costs are reduced for smaller sized companies that would no longer be required to prepare and lodge financial accounts
Stakeholders are encouraged to comment on the proposed regulations ‒ particularly, whether the suggested thresholds are appropriate ‒ with the consultation period expiring on 14 December 2018. If enacted, the regulations are expected to commence on 1 July 2019, and apply in relation to financial years beginning on and after that date.