The financial and directors’ reporting obligations for an Australian Incorporated Proprietary Company are quite onerous and must be audited if filed with the Australian Securities and Investments Commission (“ASIC”) each year. Most small proprietary companies, however, are exempt from the obligation to prepare and file Chapter 2M (Corporations Act) financial and directors’ reports.
A company is a small proprietary company for a financial year if it satisfies at least 2 of the following:
1. The consolidated revenue for the company and entities it controls (if any) is less than AUD25m;
2. The value of the consolidated gross assets at the end of the financial year of the company and the entities it controls is less than AUD 12.5m;
3. The company and the entities it controls have fewer than 50 employees at the end of the financial year.
Be aware, however, that the reporting exemption is not available if:
- The company’s shareholders or ASIC require the company to prepare the reports; or
- The company is controlled by a foreign company for all or part of a financial year and the Australian company is not consolidated for that period in the financial statements lodged with ASIC by a registered foreign company.
What if the company is a Foreign Owned Small Proprietary Company
Generally, a foreign owned small proprietary company that fails to prepare and file annual financial and directors’ reports commits a breach of the Corporations Act. Directors of the company, including foreign directors, who fail to take all reasonable steps to comply with the reporting requirements will contravene the Act. That could lead to hefty fines and potentially, orders banning them from being directors or managers of Australian companies. If dishonesty is involved the directors could be guilty of a criminal offence.
Due to the onerous nature of complying with the Chapter 2M requirements ASIC has provided Class Order 98/98 that can provide a foreign owned small company with relief from the reporting and filing obligations.
The Class Order needs to be carefully explored to confirm the exemption can apply. Additionally there are some key documents that need to be executed and lodged and failure to complete the appropriate paperwork in a timely fashion can result in a breach of the Corporations Act.
It really is a case of crossing your t’s and dotting your i’s.
If these circumstances apply to you then we would strongly recommend seeking advice to review your obligations.
Please Note: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.