Companies limited by guarantee - simplified obligations

From 28 June 2010, companies limited by guarantee are subject to a number of law changes including:

  • prohibition on payment of dividends to members
  • preparation and audit or review of financial reports, and
  • annual financial reporting to members.

Importantly, the law now defines a small company limited by guarantee.

What is a small company limited by guarantee?

  • A company is a small company limited by guarantee in a particular financial year if:
  • it is a company limited by guarantee for the whole of the financial year
  • it is not a deductible gift recipient at any time during the financial year, and
  • its revenue (or consolidated revenue if that applies) for the financial year is less than $250,000.

Commonwealth companies or subsidiary, or a subsidiary of a Commonwealth authority, transferring financial institutions, building and credit societies and credit unions are excluded from some of these changes. For full details, see s45B in the changes to the Corporations Act 2001 (Corporations Act).

What are the changes to dividend payments?

A company limited by guarantee and registered on or after 28 June 2010 cannot pay dividends to its members.

How have the financial reporting obligations of companies limited by guarantee changed?

Companies limited by guarantee have a three-tier reporting framework, as shown in the following table. These changes apply to financial years ending on and after 30 June 2010.

Tier

Type of company

Obligations

1

Small company limited by guarantee.

Unless directed by a member or ASIC, does not have to:

• prepare a financial report or have it audited

• prepare a directors’ report, or

• notify members of annual reports.

2

Company limited by guarantee with annual (or consolidated) revenue of less than $1 million.

Must prepare a financial report.

Can elect to have its financial report reviewed, rather than audited.

Must prepare a directors’ report, although with less detail than that required of other companies.

Must give annual reports to any member who elects to receive them.

3

Company limited by guarantee with annual (or consolidated) revenue of $1 million or more.

Must prepare a financial report.

Must have the financial report audited.

Must prepare a directors’ report, although with less detail than that required of other companies.

Must give annual reports to any member who elects to receive them.

How should a review of financial reports be conducted?

A review of a financial report provides a lower level of assurance than an audit but may result in reduced costs for companies. The review need not be undertaken by a registered company auditor. However, the reviewer must be a member of and hold a practising certificate issued by:

  • the Institute of Chartered Accountants in Australia
  • CPA Australia Limited, or
  • Institute of Public Accountants.

What are an auditor’s obligations?

The auditor of a small company limited by guarantee will not need ASIC consent to resign. However, as a public company, the requirement to appoint or fill any auditor vacancy still applies. Auditor obligations continue unchanged for all other limited-by-guarantee companies.

See Resignation of an auditor under the Corporations Act (INFO 65) for more information.

How should annual reports be distributed?

Small companies limited by guarantee no longer need to write to members each year informing them that the report has been prepared.

Members wishing to obtain a hard copy or an electronic copy of the company’s latest annual report can choose to obtain this from the company free of charge, and the company limited by guarantee must comply with this request. The choice made by a member to either receive a hard copy or an electronic copy stands for subsequent financial years until the member changes their selection. They do not need to repeat their request for a copy of the report each year.

Where can I get more information?

Read the changes to the Corporations Act on the Parliament of Australia website. Contact ASIC's infoline on 1300 300 630 or make an enquiry at www.asic.gov.au/question

Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice.

You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases your particular circumstances must be taken into account when determining how the law applies to you.

This is Information Sheet 131 (INFO 131). Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.

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Last updated: 18/10/2014 11:04