Obligations of companies limited by guarantee

Some of the obligations vary depending on whether the company is a ‘small company limited by guarantee’ or a ‘company limited by guarantee’, as defined in the Corporations Act 2001 (Corporations Act).

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
• its revenue (or consolidated revenue if that applies) for the financial year is less than $250,000.

Commonwealth companies or subsidiaries, subsidiaries of Commonwealth authorities, transferring financial institutions, building and credit societies, and credit unions are excluded from some of these obligations. For full details, see section 45B of the Corporations Act.

Financial reporting obligations

Companies limited by guarantee have a three-tier reporting framework: see Table 1. These obligations apply to financial years ending on and after 30 June 2010.

Table 1 The three-tier reporting framework

Tier	Type of company	Obligations
1	Small company limited by guarantee (as defined in section 45B)	Unless directed by a member or ASIC, the company 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	The company: must prepare a financial report can elect to have its financial report reviewed (a review does not need to be done by a registered company auditor – see below), rather than audited unless the company is a Commonwealth company or a subsidiary of a Commonwealth company or Commonwealth authority 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	The company must: prepare a financial report have the financial report audited prepare a directors’ report, although with less detail than that required of other companies give annual reports to any member who elects to receive them.

Reviewers of financial reports

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:

• Chartered Accountants Australia and New Zealand (formerly the Institute of Chartered Accountants in Australia)
• CPA Australia, or
• the Institute of Public Accountants.

Obligations relating to auditors

Appointment

A small company limited by guarantee (Tier 1) or a Tier 2 company limited by guarantee whose directors believe that the financial reports of the company will be reviewed instead of audited does not need to appoint a registered company auditor.

All other companies limited by guarantee must comply with the requirement to appoint an auditor or fill any auditor vacancy.

Resignation and removal

The auditor of a small company limited by guarantee (Tier 1) does not need ASIC consent to resign.

All other companies limited by guarantee that have appointed a registered company auditor must comply with the auditor resignation or removal obligations: see Regulatory Guide 26 Resignation, removal and replacement of auditors (RG 26), Information Sheet 65 Resignation of an auditor of a public company (INFO 65) and Information Sheet 62 Removal of an auditor of a company (INFO 62).

Payment of dividends

A company limited by guarantee and registered on or after 28 June 2010 cannot pay dividends to its members. Companies limited by guarantee registered before this date are grandfathered and can pay dividends.

Distribution of annual reports to members

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 Corporations Act.

Download

• RG 26 Resignation, removal and replacement of auditors
• INFO 62 Removal of an auditor of a company
• INFO 65 Resignation of an auditor of a public company.

Contact ASIC on 1300 300 630.

Submit a question online 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. We encourage you to seek your own professional advice to find out how the applicable laws apply to you, as it is your responsibility to determine your obligations.

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.