On 19 March 2015, the Corporations Act 2001 (Act) was amended by laws which aim to simplify how companies do business and conduct their affairs. The changes focus on meeting and reporting requirements and resolving ambiguity for companies limited by guarantee.
On 19 March 2015, new laws came into effect which aim to simplify certain rules and compliance obligations under the Act.1
The key amendments are as follows:
- removing the ‘100 member’ meeting rule2
- exempting certain companies limited by guarantee from the need to appoint or retain an auditor
- reducing the remuneration reporting requirements
- clarifying the circumstances in which a financial year may be determined to be less than 12 months.
Removal of the ‘100 member’ meeting rule
Under the old regime, members could call a general meeting if the request was made by either members with five percent of the votes that may be cast, or by at least 100 members who were entitled to vote at the general meeting. In circumstances where public companies may have many thousands of shareholders, the 100 member rule was seen as setting the threshold too low for the process of initiating a costly meeting, especially where the resolution was unlikely to succeed.
The new amendment reduces the capacity for activists with proportionately very small shareholdings from requiring companies to hold general meetings. With the new changes, a general meeting of a company must only be arranged if members with at least five percent of the votes that may be cast make the request.
Practical changes for small companies limited by guarantee
For small companies limited by guarantee, the main practical difference is that there is no longer a requirement to appoint an auditor within one month of incorporation, or retain an auditor.
Previously, all companies limited by guarantee had to appoint an auditor regardless of whether or not the company was actually required to have its annual financial report audited. Certain small companies limited by guarantee have an option for their annual financial report to be ‘reviewed’ instead of audited.
By removing the unnecessary appointment of an auditor, small companies limited by guarantee benefit from less regulation and more freedom in conducting their business affairs.
Which companies limited by guarantee can take advantage of these changes3
Those companies limited by guarantee entitled to choose whether their annual financial report is reviewed rather than audited, are:
- a company limited by guarantee with annual revenue of less than $250,000 that is not a deductible gift recipient
- a company limited by guarantee with annual revenue of less than $1 million that is not registered with the Australian Charities and Not-for-profits Commission (ACNC).
The amendments do not extend to registered charities that are limited by guarantee.
Improving remuneration reporting4
Before the new changes, all companies were required to produce very detailed executive remuneration reports to help shareholders make an informed decision about how key management personnel were remunerated.
Under the new provisions:
- unlisted disclosing entities are no longer required to provide a remuneration report
- listed disclosing companies need only provide a general account of how key management personnel are remunerated, insofar as the information is not provided in the company’s annual report.
The general account of how key management personnel are remunerated must include information relating to lapsed options, being:
- the number of options granted for remuneration of key management personnel that lapse during the financial year
- the year in which the lapsed options were originally granted.
Determining the financial year5
The new laws clarify provisions about how a company shortens its financial year by providing that an entity may:
- modify its financial year by up to seven days to accommodate internal reporting frameworks which are generated on a weekly basis
- synchronise its financial year with other group entities in order to prepare consolidated financial reports.
The new changes also:
- allow members of the Takeovers Panel to perform duties while in Australia and overseas
- allow the Remuneration Tribunal to set the terms and conditions of Chairs and members of the Financial Reporting Council, the Australian Accounting Standards Board and the Auditing and Assurance Standards Board.
Where do these changes leave corporate regulation?
The changes are a welcome indication of a Parliament which is attuned to the importance of making business easier in Australia for entities under the Act. However, overall they amount to a small step in circumstances where the Act would benefit from similar clarifications and simplifications in a number of areas. One hopes that additional changes will follow over time.