Corporate downsizing: Federal Government proposes changes to large proprietary company thresholds

On 16 November, the Federal Government released for public consultation exposure draft regulations, Corporations Amendment (Proprietary Company Thresholds) Regulations 2018 (Regulations). The Regulations propose to reduce the financial reporting burden for some proprietary companies by increasing the thresholds for determining what constitutes a large proprietary company under the Corporations Act.

The Federal Treasurer, the Hon Josh Frydenberg MP, stated that the purpose of the Regulations is to cut more red tape for small businesses.

The current and proposed thresholds are as follows:

 

Current thresholds Proposed thresholds
A proprietary company is a ‘large proprietary company’ if it meets at least two of the following thresholds in a given financial year:
$25 million or more in consolidated revenue $50 or more in consolidated revenue
$12.5 million or more in consolidated gross assets >$25 million or more in consolidated gross assets
50 or more employees 100 or more employees

 

According to the Explanatory Memorandum, the increased thresholds provided in the Regulations will ensure financial reporting obligations are targeted at economically significant companies while reducing costs for smaller sized companies that would no longer be required to lodge audited financial reports with ASIC. There’s certainly no status advantage in being regarded as a ‘large proprietary company’; on the contrary, the status carries with it the burden and cost of the financial reporting regime applied to public companies. To put this into context, it is estimated that the reforms would reduce the regulatory cost on those caught by the current regime by $81.3 million annually, as the Treasurer’s office has reported the average cost of preparing and auditing financial reports as being approximately $36,950 per company, per year.

Submissions are due by 14 December 2018.

This article was written with the assistance of David Peng, Law Graduate.


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