This is the second in a Kindrik Partners series on company admin to be thinking about when 1 April comes around each year. The first one dealt with AGMs. In this blog, we’ll introduce the default financial reporting requirements that apply to many companies under the NZ Companies Act 1993, and help you navigate opting out of them if you wish to.
Did you know?
If your company has 10 or more shareholders, the Companies Act requires you to:
Did you also know? You don’t have to live your life like this. If your shareholders are on board, and you navigate the what’s and when’s of the opting out regime under the Companies Act, you can opt out of one or all three of these requirements. Of course, staying on top of your financial position as a company – and communicating with your shareholders on a regular basis – are essential to good governance, but you may prefer to take care of these in your own way rather than following the default approach.
How do you know if you’ve hit/exceeded the 10-shareholder threshold?
The golden rules are:
Who can opt out?
Any company with 10 or more shareholders can choose to opt out of one or all three of the default requirements, unless:
What can you opt out of?
Any, or all three, of the default requirements described above.
If you have hit the 10 shareholder threshold and want to opt out of one or all of the default requirements – what do you do now?
You’ll need to get your shareholders on board, and you’ll need to keep a close eye on the calendar. Opting out of one or all of the default requirements requires a resolution approved by at least 95% of the votes of those shareholders entitled to vote and voting on the resolution. That resolution must also be passed within a specific time period.
For most companies, the opting period – within which a company can arrange for its shareholders to pass a resolution opting out of one or all of the default requirements in respect of a particular financial year – starts on the first day of that financial year (usually 1 April), and expires at the end of the day on the earlier of these two dates:
So, if you’re reading this in May 2022, and you want to opt out of the default financial reporting requirements for the financial year that runs 1 April 2022 to 31 March 2023, you’ll most likely need your shareholders to pass that resolution before midnight on 1 October 2022, or before midnight on the date of your AGM (if you’re holding an AGM in 2022), whichever comes first.
There are two ways to pass the opting out shareholders’ resolution:
What can’t you opt out of?
This opting out process doesn’t affect your obligations under the Companies Act to keep accurate accounting records, and it doesn’t affect any bespoke financial reporting requirements that may apply under your company’s governance documents (i.e. the constitution and/or shareholders’ agreement). Finally, you’ll most likely still have to prepare financial reports for tax purposes – your friendly accounting/tax advisor will be able to give you a steer on that.
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