A company director’s duties are onerous and new appointees as directors should not underestimate the legal requirements that they need to abide by in the performance of their duties.
With many companies now taking advantage of the significant changes that were made by the Australian government, about 4 years ago, relating to some companies having the ability to raise capital direct from the public through Crowd Sourced Funding Equity Raising Companies and Early Stage Innovation Companies, more people are coming into direct contact with the requirements of a director in a company.
Directors of companies, that are utilising the amendments made to the Corporations Act to facilitate capital raising as a Crowd Sourced Funding Equity Raising Company, need to have a clear understanding of the Corporations Act regulations relating to raising capital as a Crowd Sourced Funding Equity Raising Company and have an understanding of the powers, duties and responsibilities of the Australian Securities & Investments Commission appointed Crowd Sourced Funding Intermediaries. This process is able to be conducted on a “self-assessment basis”, but directors have a clear requirement to ensure that the information being disclosed within the Crowd Sourced Funding Offer Document is honest and complies with the requirements of the Corporations Act.
Directors of an Early Stage Innovation Company need to have an understanding of the due diligence process required for the registration of a company as an Early Stage Innovation Company by the Australian Taxation Office if they are raising capital utilising the “Principles Test” and the self-assessment obligations if the company is able to utilise the “Gateway Test”.
To qualify under the “Principles Test” a company needs to complete detailed answers to five specific questions, supply information relating to the companies age, revenue and expenditure in the previous 12 months and submit this to the Australian Taxation Office for review and a decision as to whether the company will be accepted as being an Early Stage Innovation Company. Directors should review the material that’s being submitted as part of the due diligence process and sign off the documentation.
If the company has accumulated more than 100 points in response to the questions raised within the “Gateway Test”, the company is able to self-assess that the company has complied with the requirements to be recognised as being an Early Stage Innovation Company. Directors of these companies have a responsibility to ensure that the due diligence process has been conducted in an appropriate manner and that all of the documentation has been reviewed and has been signed by the directors, because the due diligence process is a key document that the company will be able to supply to potential investors to assure them that the company meets the requirements to be deemed to be an Early Stage Innovation Company.
Directors could potentially end up in a court case if the company has signed off on documentation that implies that the company has qualified as an Early Stage Innovation Company and investors, in good faith, invest in the company in anticipation of receiving the taxation benefits that are available to investors in this type of company, if it is subsequently found that the due diligence process was not legitimately implemented.
Directors of companies that are raising capital under Section 708 of the Corporations Act also have key areas that they need to monitor, including that only 20 shareholders are involved in capital raising in 12 months, that the amount raised does not exceed $2,000,000 and that the company does not undertake any advertising or marketing relative to the capital raising being conducted.
Towers Business Development Pty Ltd is an experienced business advisory services organisation which has conducted a series of workshops, in pre-COVID times, on behalf of the Australian government’s AusIndustry on the “Role of a Director in Small and Medium Business”. Peter Towers, Managing Director, has had considerable corporate experience as the company secretary and chief financial officer of a listed public company. We are presenting a free webinar “Corporate Governance Issues for SMEs” on Thursday 5th August 2021 at 12-noon AEST. To register (click here).
Towers Business Development Services
Towers Business Development does not give taxation advice but offers consulting services for small/medium sized enterprises and accountancy businesses, including:
Want to know more about the services that Towers Business Development can supply to assist your business in its business growth? You are invited to visit the Towers Business Development website; or contact Peter Towers:
Have a great day!