From July 1 2019, changes to the definition of 'small' and 'large' proprietary companies will have a significant impact on the reporting obligations of small and medium sized enterprises.

Overview

Under the previous regime 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

Large Pro­pri­etary Companies – Small Pro­pri­etary Companies –
  • $25 mil­lion or more in con­sol­i­dat­ed revenue;
  • $12.5 mil­lion or more in con­sol­i­dat­ed gross assets; or
  • 50 or more employees.
  • less than $25 mil­lion in con­sol­i­dat­ed revenue;
  • less than $12.5 mil­lion in con­sol­i­dat­ed gross assets; or
  • less than 50 employees.

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

Large Pro­pri­etary Companies – Small Pro­pri­etary Companies –
  • $50 mil­lion or more in con­sol­i­dat­ed revenue;
  • $25 mil­lion or more in con­sol­i­dat­ed gross assets; or
  • 100 or more employees.
  • less than $50 mil­lion in con­sol­i­dat­ed revenue;
  • less than 25 mil­lion in con­sol­i­dat­ed gross assets; or
  • less than 100 employees.

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.

For further information please contact:

Bill Lo, Associate
Phone: +61 2 9233 5544
Email: bbl@swaab.com.au

Emily Capener, Graduate at Law

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.