A private company has a 'pre-emptive rights' requirement, which means that, before directors of a private company can issue additional shares in a company, or approve a share transfer, they should offer those shares firstly to the existing shareholders (who have the same class of shares). The board of directors can also reject a proposed purchaser of shares in the company from becoming a shareholder.
Businesses Entities – Large Propriety Companies
The Corporations Code has created a specific type of private company known as a 'large propriety company'.
A 'large propriety company' is a company that has two of the following:
• The consolidated revenue for the financial year of the company and any entities it controls is $25 million or more.
• The value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $12.5 million or more.
• The company or any entities it controls have 50 or more employees at the end of the financial year.
The company that complies with any two of these statements is classified as a 'large propriety company'.
Large propriety companies must prepare and lodge a financial report and director's report for each financial year. The accounts must be audited, unless Australian Securities & Investments Commission (ASIC) grants relief.
A large propriety company can apply to ASIC for audit relief. ASIC will generally only give audit relief if:
• all the directors and shareholders of the company agreed that an audit is not required;
• ASIC is satisfied that the company is well managed and in a sound financial condition, mostly directly relevant to the interest of the creditors;
• the company's total liabilities must not exceed 70% of the total assets;
• the company must be profitable from ordinary activities and remain solvent;
• the company's financial report must be prepared by a prescribed accountant;
• the company's financial reports must be lodged on time;
• there is no proposed modified audit report or material disagreement with any auditor; and
• the company lodges its financial report within the deadlines in the Corporation's Code (ie four months after the end of the financial year).
A company applying for audit relief is required to lodge a form (Form 382) with ASIC after the resolutions of directors and shareholders are obtained.
A notice must be lodged during the period commencing three months before the start and ending four months after the end of the first financial year in which relief is to be applied or re-applied.
The ASIC Class Order indicates that ASIC will not grant extensions of time to lodge Form 382 or to pass annual resolutions of directors and shareholders.
The Class Order indicates that audit relief is a privilege rather than a right.
The ASIC Class Order indicates that the items that will be taken into account to determine whether to approve an application, to dispense for the appointment of an auditor include, 'does the company have appropriate internal management systems, which enable the directors to assess the financial condition and the solvency of the firm promptly?'
The Class Order indicates that, as a minimum, the assessment by directors must include:
• a quarterly assessment of profit and loss statement;
• balance sheet; and
• cashflow statement,
prepared for management purposes.
If you would like to discuss any aspect of a large propriety company's obligations, please don't hesitate to contact us.
Credit Application Form – Helps Effective Debtors' Management
An effective debtors' management system commences with a written credit application form. Do you ask your potential customers to complete a credit application form, which encourages them to identify exactly who they are, the business name with which they will be trading with you, their business address, contact address, etc?
The form should invite them to supply details of the type of business they are operating. After all, they want you to supply the goods and services to them and take at least 30 days to pay you. You're entitled to know:
• if they are operating in their own premises;
• if they are leasing their premises;
• their turnover;
• their average investment in stock; and
• the names, addresses and contact details of at least three of their current suppliers as trade references.
This also gives you the opportunity to specify your terms of credit, as per your credit application form.
If you would like to discuss an appropriate credit application form for your business, please don't hesitate to contact us.
Gross Profit Percentage – A Good Indicator
A good indicator, to determine whether you have purchased stock at a higher cost than what you would normally do, is to calculate the 'gross profit percentage' at least on a monthly basis.
Gross profit is determined as the difference between your selling price and your cost of goods sold. The calculated figure, the gross profit, is then divided by your sales figure and multiplied by 100/1.
Sales – $140,000 Cost of Goods Sold – $86,800
$140,000 – $86,800 = $53,200 (Gross Profit)
$53,200/$140,000 x 100/1 = the gross profit percentage is expressed as 38%.
If your normal gross profit percentage was, say, 49%, this would give you an indication that the 11% variance could have been caused by:
• paying more for your purchases than you normally have, or perhaps paying more for your freight in;
• damaged or deteriorating stock, which has been written off – the effect of which is reflected in the gross profit calculation;
• paying for stock you haven't received; and
• there may have been a reduction in effective selling prices for the stock items sold.
Continually evaluating your gross profit percentage, in your various departments and lines of stock if you can, is a great way to give you a quick key performance indicator (KPI) on the efficiency of your purchasing within your stock control area.
If you would like us to review a gross profit percentage earned within your business, please don't hesitate to contact us.
Third Party Reporting To The Australian Taxation Office
The Australian Taxation Office (ATO) now receives information from third parties, for each taxpayer, in relation to:
• wage and salary data;
• dividend income; and
• government welfare payments;
• private health insurance details.
• interest income;
Tax Compliance – Improving Compliance through Third Party Reporting and Data Matching
From 1 July 2014, the third party reporting regimes will be extended to include:
• the sale of real property;
• sale of shares and units in unit trusts;
• sales through merchant debit and credit services; and
• taxable government grants and other payments.
This will also result in more frequent reporting of information throughout the year to the ATO, on an event-based style reporting.
An ATO discussion paper mentions that, for an investment of $80 million, the ATO expect to recover an additional $610 million from taxpayers because of the third party reporting process.