The Commonwealth Government has officially doubled the reporting thresholds for ‘large’ proprietary companies after the Corporations Amendment (Proprietary Company Thresholds) Regulation 2019 received royal assent on 4 April 2019. The new requirements are unchanged from the proposals in the Exposure Draft issued late last year and will be effective for financial years beginning on or after 1 July 2019.
Under the Corporations Act 2001, ‘large’ proprietary companies are required to lodge an audited annual financial report that includes a director’s report with the Australian Securities and Investments Commission (ASIC). ‘Small’ proprietary companies are only required to lodge audited financial statements if so directed by ASIC, or if 5% or more of their shareholders request that such a report be prepared and lodged.
Under the new Regulations, a proprietary company will be considered ‘large’ for a financial year if it satisfies at least two of the following requirements:
- $50 million or more in consolidated revenue for the financial year of the company and the entities it controls (up from $25 million);
- $25 million or more in consolidated gross assets at the end of the financial year of the company and the entities it controls (up from $12.5 million);
- The company and the entities it controls have 100 employees or more at the end of the financial year (up from 50).
The increase in thresholds is intended to ensure financial reporting obligations are targeted at economically significant entities while reducing compliance costs for relatively smaller proprietary companies.
The current ‘grandfathering’ provisions for proprietary companies remain unchanged. Those grandfathered entities that become ‘small’ under the increased thresholds should consider continuing to have their financial reports audited in order to maintain their grandfathered status should the business grow and become ‘large’ again at some point in the future.