Small Proprietary Companies Under The Corporations Act: Compliance Guide

Setting up a small business as a company in Australia can be an exciting next step. A company structure offers limited liability, credibility with customers and suppliers, and a solid foundation for growth.

It also comes with legal responsibilities under the Corporations Act 2001 (Cth). If you’re planning to operate as a small proprietary company, it’s important to understand what that means in practice and how to stay compliant year-round.

This guide explains how “small proprietary company” is defined, your key compliance obligations, a practical setup checklist, and what changes as you grow. Our aim is to help you focus on building your business with confidence while staying on the right side of the law.

What Is A Small Proprietary Company In Australia?

Under the Corporations Act, companies are either public or proprietary. Proprietary companies (often called “private companies”) are by far the most common structure for startups and small to medium businesses.

Within proprietary companies, the law distinguishes between “small” and “large.” The size classification matters because it drives financial reporting, audit and some lodgement requirements.

The 2-out-of-3 Size Tests

A proprietary company is a “small proprietary company” for a financial year if it satisfies at least two of the following three criteria:

• Consolidated revenue: less than $50 million for the financial year.
• Consolidated gross assets: less than $25 million at the end of the financial year.
• Employees: fewer than 100 employees at the end of the financial year.

“Consolidated” means you include the company and any entities it controls for the purposes of these thresholds.

Practical Examples

• A digital marketing agency with 10 staff and $1.5 million annual revenue is likely small.
• A growing café group with 3 locations, 45 staff and $8 million revenue is likely small.
• A manufacturing business with $22 million in assets, $12 million revenue and 80 staff is likely small (it meets two tests).

Reassess every year. If you cross the thresholds, different financial reporting and audit obligations may apply for the next financial year.

Why Choose A Small Proprietary Company?

Not every business needs to incorporate, but many founders choose a company structure because it offers:

• Limited liability: the company is a separate legal entity, which generally limits your personal liability.
• Credibility and growth: being incorporated can build trust and make it easier to bring in co-founders or investors.
• Ownership flexibility: you can issue shares and set up clear ownership and decision-making frameworks.
• Operational continuity: the company can continue beyond changes in ownership or management.

Companies are more regulated than sole traders or partnerships, so it’s important to be clear on your ongoing obligations before you take the leap.

Core Compliance Obligations Under The Corporations Act

Small proprietary companies have lighter obligations than large or public companies, but there are still important rules to follow. Here’s what to have on your radar.

1) ASIC Registration And Annual Review

• Register your company: apply to ASIC (Australian Securities and Investments Commission). Once registered, you’ll receive an ACN and a Certificate of Registration.
• Annual review: each year ASIC issues an annual statement and fee. You must review your details, pay the fee, and pass a solvency resolution (more on this below).
• Notify changes: if your company details change (directors, addresses, share structure), notify ASIC using the appropriate form, such as Form 484.

2) Solvency Resolution

Within two months of your annual review date, your directors must pass a solvency resolution confirming whether, in their opinion, the company can pay its debts as and when they fall due. This is a Corporations Act requirement for proprietary companies.

It’s good practice to document this properly. For a deeper overview of what’s involved, see the process around a solvency resolution.

3) Financial Records And Reporting

• Keep proper financial records: you must keep written financial records that correctly record and explain transactions, financial position and performance. These records must enable true and fair financial statements to be prepared and, if required, audited.
• Lodgement is usually not required: most small proprietary companies do not need to prepare or lodge annual financial reports with ASIC, and do not need an audit. However, ASIC may direct you to prepare/lodge, or shareholders with at least 5% of votes may require it, and some special cases (e.g. foreign-controlled) can trigger reporting or audit obligations.

4) Company Governance And Decision-Making

• Directors’ duties: directors must act in good faith in the best interests of the company, for a proper purpose, avoid improper use of position or information, and prevent insolvent trading.
• Constitution or replaceable rules: you can adopt a tailored Company Constitution or rely on the replaceable rules set out in the Act. A tailored constitution can clarify decision-making and processes.
• Execution of documents: understand how to sign documents correctly (including electronically) and consider processes aligned with section 127.

5) Directors And Officeholders

• Resident director: at least one director must ordinarily reside in Australia. If you’re structuring your board, it helps to understand the Australian resident director requirements early.
• Company registers and minutes: keep up-to-date registers (members, option holders, charges where applicable) and accurate minutes of directors’ and shareholders’ decisions.

6) Other Key Laws That Apply To Your Company

• Australian Consumer Law (ACL): if you sell goods or services, ensure your advertising is not misleading, you honour consumer guarantees, and your terms align with unfair contract terms rules. Understanding core misleading conduct rules under section 18 is a good start.
• Employment law: when you hire, you’ll need the right Employment Contract, correct pay and entitlements under awards, and a safe workplace.
• Privacy: the Privacy Act applies to “APP entities.” Many small businesses are not APP entities unless they meet specific criteria (e.g. annual turnover of $3 million or more, health service providers, trading in personal information, acting as a contractor to the Commonwealth, credit reporting bodies and other limited categories). Even if not legally required, publishing a clear, transparent Privacy Policy is strong best practice if you collect personal information.
• Intellectual property: consider protecting your brand and other IP with trade marks, and avoid infringing others’ rights. Brand protection is easier if you plan early.
• Tax and BAS: companies have their own tax obligations (e.g. company tax returns, PAYG withholding if you have employees, GST registration if turnover meets the threshold). Speak with your accountant or tax adviser for tailored tax guidance.

How To Set Up Your Small Proprietary Company (Step-By-Step)

Here’s a practical roadmap to go from idea to compliant company.

Step 1: Clarify Your Plan

Map out the product or service you’ll offer, who your ideal customers are, how you’ll price and deliver, and your near-term goals. A simple plan helps you make good decisions about structure, funding and risk management.

Step 2: Choose Your Company Name And Structure

• Company vs other structures: a company offers limited liability and is typically better for growth or taking on investors. Sole trader and partnership structures are simpler but do not offer the same personal liability protection.
• Name checks: confirm your proposed name isn’t identical or confusingly similar to an existing company or business name, and consider future brand protection with a trade mark.

Step 3: Register Your Company With ASIC

• Set your details: choose registered office and principal place of business addresses, appoint officeholders, decide on share classes and shareholdings, and select a constitution or replaceable rules.
• Get your ACN: on registration, ASIC issues an ACN and your Certificate of Registration. Keep your core records well organised from day one.
• ABN, TFN and GST: apply for your ABN and TFN. Register for GST if your turnover is at or above the relevant threshold. Your tax adviser can help you set this up efficiently.

Step 4: Put The Right Governance In Place

• Constitution: adopt a tailored Company Constitution to set clear rules for board/shareholder decisions, share transfers, and director appointments.
• Shareholder arrangements: if there’s more than one owner, a Shareholders Agreement will help you agree on decision-making, exits, dispute processes and funding.
• Signing rules: ensure your signing processes align with company execution methods, including the use of section 127 where appropriate.

Step 5: Prepare Your Core Contracts And Policies

Tailored documents reduce risk and help things run smoothly:

• Customer terms or service agreement: set out scope, pricing, payment, warranties, liability and cancellation.
• Employment or contractor agreements: use a proper Employment Contract for staff and suitable contractor agreements when engaging contractors.
• Privacy and website terms: publish a clear Privacy Policy and website terms if you collect personal information or trade online (best practice even if not legally required under the APPs).
• Supplier and partner agreements: lock in deliverables, timeframes, pricing and IP ownership with your key suppliers and collaborators.

Step 6: Set Up Accounting And Recordkeeping

• Accounting systems: implement cloud accounting software to manage invoicing, payroll, and BAS reporting.
• Retention: maintain financial and corporate records for the required periods (often seven years).
• Audit-readiness: keep records accurate and up to date so you can prepare financial statements promptly if ASIC or shareholders request them.

Step 7: Meet Ongoing ASIC Obligations

• Annual review and fee: check your annual statement for accuracy, pay the fee, and pass your solvency resolution on time.
• Notify changes: update ASIC promptly when details change using the right form, such as Form 484.
• Board hygiene: schedule regular board meetings (or circulating resolutions) and keep minutes and registers up to date.

Growing Or Changing? When Small Becomes Large

If your business expands, you may move from “small” to “large proprietary company” status in a later financial year (by meeting at least two of the three tests above). Large proprietary companies generally must prepare and lodge annual financial reports with ASIC and have them audited.

Other events can also change your obligations, such as foreign control, fundraising or complex group structures. Build an annual compliance check into your calendar so you can plan ahead for new requirements.

Two practical tips as you grow:

• Revisit your governance: as ownership and the board evolve, update your constitution and shareholder arrangements so decision-making stays clear.
• Strengthen financial reporting: scale up your finance function early (internal controls, monthly reporting, and, where appropriate, external advisers) so you’re ready if an audit becomes mandatory.

Key Takeaways

• A small proprietary company meets at least two of the thresholds for revenue, assets and employees set out in the Corporations Act.
• Core obligations include ASIC registration, annual review and fee, a timely solvency resolution, accurate financial records and proper governance.
• Most small proprietary companies don’t need to lodge audited financial reports unless directed by ASIC, required by certain shareholders or specific circumstances apply.
• Directors must comply with legal duties (act in good faith, for proper purpose, avoid misuse of position/information and prevent insolvent trading) and keep company registers and minutes up to date.
• Broader laws still apply: Australian Consumer Law, employment, privacy (noting the APP $3m threshold and specific exceptions) and IP. Put the right contracts and policies in place early.
• As you grow, review your size classification annually and prepare for additional reporting or audit requirements if you become a large proprietary company.

If you’d like a consultation on setting up or managing your small proprietary company in Australia, reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.