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Corporate Reporting Law Reforms - Companies Limited by Guarantee

As of 28 June 2010, companies limited by guarantee will be subject to reduced and simplified annual financial and directors' reporting requirements (under the Corporations Amendment (Corporate Reporting Reform) Bill 2010 (Cth)). Further, all companies limited by guarantee which are incorporated on or after the commencement date are prohibited from paying any dividends to Members.

Prior to the reforms, all companies limited by guarantee (regardless of size or activities) were required to prepare annually:

1. an audited financial report, in accordance with Australian accounting standards; and

2. a directors' report in accordance with the Corporations Act 2001 (Cth).

Under the new regime, three tiers of differential reporting requirements apply, according to the revenue and deductible gift recipient status of each company limited by guarantee, as follows:

Tier 1

Criteria

  • revenue (or consolidated revenue) < $250,000/year; and

  • not a deductible gift recipient.

Financial reporting

  • Exempt from producing a financial report (and having it audited, and providing it to members), unless required to do so by Members holding at least 5% of the votes, or by ASIC.

Directors' reporting

  • Exempt from producing a directors' report (and providing it to members), unless required to do so by Members holding at least 5% of the votes, or by ASIC.

Tier 2

Criteria

  • revenue (or consolidated revenue) < $1,000,000/year; and

  • may be a deductible gift recipient.

Financial reporting

  • Must prepare a financial report, but may elect to have it reviewed (in accordance with Auditing and Assurance Standards Board, Auditing Standard on Review Engagement 2415) rather than audited.

  • Need only provide annual reports to those Members who elect to reveive them (electronically or in hard copy).

Directors' Reporting

  • Must prepare a simplified directors' report regarding matters including:

- objectives;

- strategy;

- activities;

- achievements; and

- performance measures.

  • Need only provide annual reports to those Members who elect to receive them (electronically or in hard copy).

Tier 3

Criteria

  • revenue (or consolidated revenue) >_ $1,000,000/year; and

  • may be a deductible gift recipient.

Financial reporting

  • Must continue to prepare an audited financial report.

  • Need only provide annual reports to those Members who elect to receive them (electronically or in hard copy).

Directors' Reporting

  • Must prepare a simplified directors' report regarding matters including:

- objectives;

- strategy;

- activities;

- achievements; and

- performance measures.

  • Need only provide annual reports to those Members who elect to receive them (electronically or in hard copy).

CRCs should note that: Whilst most CRCs will earn over the relevant thresholds during their Commonwealth funding, if the CRC company continues legacy-transition operations, their earnings may be substantially less. Therefore, some CRC's might consider whether their company Constitution and Participants Agreement allow for them to conduct activities without such onerous audit and reporting activities. Moreover, CRCs should consider whether they have any small related entities or indeed, Participants, who may benefit from these amendments.

If a CRC does fall under the relevant threshold, they will still need to consider their obligations pursuant to their Participants Agreement.

14 July 2010