Understanding Section 45A Of The Corporations Act For Businesses

Registering a company in Australia can give you limited liability, help you bring on investors and set you up for growth. It also means understanding a few core parts of the Corporations Act 2001 (Cth) - and Section 45A is one of the big ones.

Section 45A is the provision that tells you whether your company is legally a “small proprietary company” or a “large proprietary company.” That classification isn’t just a label. It drives your financial reporting obligations, whether you need an audit, and what ASIC (the Australian Securities and Investments Commission) expects from you each year.

In this guide, we’ll break down Section 45A in plain English, show you how the tests work, and outline what it means in practice for your reporting and compliance. If you’re deciding on a company structure, or you already run one and want to stay compliant without overdoing the admin, this overview will help you get it right.

What Is Section 45A And Why It Matters?

Section 45A sets the dividing line between small and large proprietary companies. Proprietary companies are private companies (the ones that end in “Pty Ltd”) and can’t raise capital from the public. The size classification matters because it changes what you need to prepare, keep and sometimes lodge with ASIC at the end of a financial year.

For most startups and growing businesses, being a small proprietary company generally means lighter reporting and fewer costs. But there are important exceptions, so it’s worth understanding the detail before you plan your year-end obligations.

How Does Section 45A Define Small Vs Large Proprietary Companies?

Section 45A uses three objective tests. If your company (together with any entities it controls) meets at least two of the three thresholds at the end of a financial year, you’re a small proprietary company for that year. If you meet two or more of the higher thresholds, you’re a large proprietary company.

The Three Tests

• 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.

These thresholds reflect the current (post‑2019) settings. “Consolidated” means you look at your company together with entities it controls, not just the standalone company. If you’re unsure whether you “control” another entity for consolidation, it’s helpful to revisit what control under the Corporations Act means in practice.

A Simple Example

Say you run “Bright Ideas Pty Ltd.” At year end, you have $2.2 million in revenue, $600,000 in assets and 12 employees. You meet two of the three “small” tests (revenue and assets), so Section 45A classifies you as a small proprietary company for that year.

If you scale up over time and begin to control other entities, add assets and hire more people so that you meet two or more of the higher thresholds, your classification will switch to large. That change affects your reporting for that year.

Why The Consolidation Point Matters

It’s common for groups to have a parent company and one or more subsidiaries or trusts. Section 45A looks through the group. If your company controls another entity, you aggregate revenue, assets and employees when you assess the tests. Getting this wrong can lead to under‑reporting or missed audit obligations, so it’s something to check with your accountant or corporate lawyer if your structure has more than one entity.

What Does Being A Small Proprietary Company Mean For Reporting?

Section 45A itself sets the definition. Your reporting obligations then flow from other parts of the Act (particularly the financial reporting provisions in Part 2M.3). Here’s how it typically plays out for small proprietary companies - and the main exceptions to watch.

The General Position For Small Proprietary Companies

• No automatic audit: Small proprietary companies don’t need an audit by default.
• No routine lodgement: Most small proprietary companies don’t have to prepare and lodge financial reports with ASIC each year.
• But keep proper records: You must keep accurate financial records that explain transactions and the company’s financial position and performance, even if you don’t lodge them.

The “no lodgement” position changes if certain triggers apply. Two common ones are an ASIC direction and a request from shareholders who hold at least 5% of voting shares - in either case, you may be required to prepare, and sometimes audit, financial reports and lodge them with ASIC.

Important Exceptions And Special Cases

Even if you meet the small proprietary tests, you may still need to prepare and lodge audited financial statements if:

• Foreign control applies: Your company is controlled by a foreign company (subject to limited reliefs, such as where you are consolidated into a higher‑level lodged report).
• You hold certain licences: You operate under specific regulatory regimes that require audited reports - for example, Australian financial services licensee obligations under s989B of the Corporations Act.
• ASIC directs you to lodge: ASIC can require reports if there are concerns about the company’s operations or compliance.

There are other targeted situations where reporting is required (for example, where specific conditions are imposed on your company), so always check your specific circumstances before assuming you’re exempt.

What About AGMs And Member Meetings?

Proprietary companies don’t have to hold annual general meetings (AGMs). That requirement is for public companies. However, proprietary companies still need to keep member and director decision‑making on track - typically through directors’ meetings, circulating resolutions and maintaining statutory registers and company records.

Ongoing ASIC Obligations Still Apply

Regardless of size, proprietary companies must keep ASIC up to date with key details (directors, addresses, share structure changes), respond to the annual statement and pay the annual review fee. If you’re putting your structure together for the first time, a streamlined way to handle the setup is a guided company set up with the right documents from day one.

Practical Steps: Structuring, Registration And Staying Compliant

If you’re planning your company structure or reviewing an existing one, it’s helpful to align your setup with the Section 45A tests and your reporting reality. Here’s a practical roadmap.

1) Choose The Right Structure

Decide whether a company is the right fit for your risk profile and growth plans. Many founders choose a proprietary limited company for limited liability and credibility with customers and investors. If you go down this path, you’ll need at least one director who meets the local residency rules - the Australian resident director requirements are an important early check.

2) Register Your Company And Core Governance Rules

When you register, you’ll obtain an ACN, set out your share structure and appoint directors. At the same time, decide whether you’ll rely on replaceable rules or adopt a tailored Company Constitution. If you have co‑founders or plan to bring in investors, a Shareholders Agreement is a smart way to set expectations around decision‑making, exits and share transfers.

3) Understand Consolidation Early

If your group will include subsidiaries, unit trusts or special purpose vehicles, map out who controls what and how that affects consolidation for Section 45A tests. Getting the structure right can avoid surprises at year‑end when you assess whether you’re small or large.

4) Set Up Robust Record‑Keeping

Regardless of whether you lodge reports, you must keep proper financial records. Work with your accountant to ensure your bookkeeping, chart of accounts and documentation of related party transactions can support your classification and any reporting you may be asked to produce.

5) Plan For The Exceptions

If you’re foreign‑controlled, hold an AFSL or operate in a regulated sector, build audit timelines and lodgement into your calendar. It’s easier to plan for an audit than to rush when a trigger arises late in the financial year.

6) Keep ASIC Details Current

Update ASIC when directors or addresses change, issue or transfer shares correctly and sign board resolutions for key decisions. Day‑to‑day governance is simpler with a clear signing process; many teams also align their practices with how documents can be executed under company authority, such as execution approaches often discussed alongside Section 127 signing.

Key Documents For Proprietary Companies

The right contracts and policies reduce risk and make your compliance life easier. While every business is different, these documents commonly sit at the core of a proprietary company’s toolkit.

• Shareholders Agreement: Sets ground rules between founders and investors, including voting rights, issuing new shares, transfers and dispute mechanisms. A clear Shareholders Agreement can prevent disagreements from derailing growth.
• Company Constitution: Customises how your company is run beyond the default replaceable rules, including share classes, director powers and meeting processes. Adopting a tailored Company Constitution helps align governance with your strategy.
• Employment Contracts and Policies: If you’re hiring, make sure each team member has the right Employment Contract and that you comply with modern awards, leave and other Fair Work obligations.
• Customer Terms (or Service Agreements): Clear terms for your clients or users reduce disputes and set expectations around scope, fees, IP, liability and termination.
• Privacy Policy: If you collect personal information (which most businesses do, especially online), a compliant Privacy Policy and privacy practices help you meet Privacy Act obligations and build trust.
• Intellectual Property Protection: Protect your brand and product names by registering trade marks. Securing rights through trade mark registration can be critical as you scale.

You may not need every document on day one, but as you grow, having these in place saves time and reduces risk. If you’re structuring a new company, it can make sense to order them together as part of your company set up rather than scrambling later.

Changing Size Status: What If You Move From Small To Large (Or Back Again)?

Your Section 45A classification is tested at the end of each financial year. If your revenue, assets or staffing change, your classification can change too - and so do your reporting requirements for that year.

When You Grow Into “Large”

Hitting two of the higher thresholds means you become a large proprietary company for that year. Large proprietary companies generally must prepare and lodge financial reports and have them audited. If you’re on the cusp of the thresholds, it’s wise to plan ahead for the time, cost and processes involved in an audit (for example, appointing an auditor early and agreeing a timetable).

When You Return To “Small”

If a later year sees you fall below the thresholds again (meeting two of the three “small” tests), your obligations reduce accordingly. That said, it’s common to maintain strong financial reporting disciplines even when small - they help with investor conversations, financing and strategic decisions.

Common Pitfalls To Avoid

• Forgetting consolidation: Not aggregating controlled entities when applying the tests can lead to the wrong classification.
• Assuming “small” means “nothing to do”: Record‑keeping, ASIC updates and targeted reporting triggers still apply.
• Leaving governance informal: Even without AGMs, you still need proper board resolutions and well‑drafted core documents like a constitution and Shareholders Agreement.

If you’re unsure how a restructure, acquisition or new subsidiary will affect your status, it’s a good idea to sense‑check the plan with your accountant and a corporate lawyer before year end.

Key Takeaways

• Section 45A defines whether your proprietary company is “small” or “large” based on three tests - revenue, assets and employee numbers - applied on a consolidated basis.
• Small proprietary companies usually don’t have to lodge or audit financial statements, but they must keep proper records and may be required to report in specific cases (e.g. foreign control, AFSL conditions, ASIC direction).
• Proprietary companies don’t need to hold AGMs, but they still need sound governance, accurate records and timely ASIC updates, including the annual review.
• Planning your structure, understanding consolidation and preparing for possible exceptions makes year‑end compliance smoother and more cost‑effective.
• Core documents like a Shareholders Agreement, Company Constitution, Employment Contracts, Privacy Policy and trade mark protection help reduce risk and support growth.
• Your size status can change year to year, so build an annual check into your reporting and governance calendar.

If you’d like a consultation about how Section 45A affects your company - or help setting up a proprietary company the right way - you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.