Takeovers Code updated to exclude small unlisted companies



Small cash-poor companies with over 50 shareholders rejoice. New changes to the Takeovers Code mean that it’s now easier for smaller companies to manage their shareholdings without significant administrative and regulatory burdens.

changes to the Takeovers Code

We were stoked to see Takeovers Code changes kick in in mid-January, which will allow unlisted companies with a long share register to escape being caught by the Code until they have significant assets or income. 

Under the amended Takeovers Code, an unlisted company will only be a ‘code company’ if:

  • it has 50 or more shareholders (with voting rights) and 50 or more share parcels, and
  • it and its subsidiaries together have total assets of at least $30 million, or total revenue of at least $15 million, at the end of the company’s most recent financial year.

Previously no asset or income threshold applied, so a small cash-poor company would be caught by the Takeovers Code as soon as it met/exceeded that 50 shareholder and 50 share parcel threshold. 

why it’s good news for smaller companies

The Takeovers Code requirements are unduly onerous for small code companies and for their larger shareholders. For this reason, professional investors will generally steer clear of investing in startups that are at risk of attracting code company status. 

The 2016 Takeovers Code (Small Code Companies) Exemption Notice was an ineffective response to those difficulties, and we are pleased to see it revoked in favour of the addition of a turnover and asset threshold.

so, what now? 

Well, we still wouldn’t recommend playing fast and loose with your share register, even if your company is unlikely to hit that $30 million asset or $15 million revenue threshold any time soon.  There are still excellent reasons to try to minimise the number of shareholders and share parcels on your books – particularly if you’re a high-growth company reliant on regular capital raising.  For example, a bulky cap table can be off-putting to third party investors, and unwieldy for boards to manage when trying to secure shareholder approvals in tight timeframes. 

We think that there is still a place for a nominee company for minority shareholdings, even if the $15m revenue threshold seems a way away.

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