Why you should outsource your compliance
Running your own business means keeping a lot of balls in the air. There’s the administration, the marketing, the HR considerations – and that’s before you get to your core business tasks! With so many things to think about, it’s tempting to let some slide. However, there’s one thing that many small to medium business owners overlook that is vitally important – that’s compliance.
Company compliance is like insurance: Many people want to escape the upfront expense of doing it correctly, but the reality of business is that you can’t afford not to have it. The penalties for non-compliance so far outweigh the initial costs of outsourcing your compliance to a professional that it’s simply good business sense to do so.
What is compliance?
Compliance means being aware of, and meeting, the requirements laid out by the Australian Securities and Investments Commission (ASIC), along with other relevant legislation.
In fact, the first step towards compliance is to make yourself aware of which rules and regulations apply to you. Consulting with a company compliance professional is the best way to do this.
Your company compliance obligations include (but are not limited to):
- Registering and renewing your business name
- Informing ASIC if your company details change
- Keeping required books and records
- Lodging documents as required, including financial returns
Depending on your industry, you’ll also need to be familiar with your obligations in relation to employment law, fair trading laws, contract law, workplace health and safety law, privacy laws and many others. You may also need various licenses or permits in order to carry on business.
Unfortunately, many of the requirements under the Corporations Act 2001 are complicated for the layperson to follow. For example, if one of your directors changes address, you not only need to complete an F484, but also an updated register and minutes – all within 28 days.
If you’ve been caught by this or a similar rule, you would be far from the first. The Corporations Act is 509 pages long, and far less gripping than a Stephen King novel – so if you’re not a compliance professional, it’s all too easy to find yourself noncompliant despite your best intentions.
What are the benefits of outsourcing compliance?
Save time and money
There are a number of benefits to outsourcing your compliance to a professional, from peace of mind to good business practice. Most persuasively, though, professional help can save your business both time and money.
We’re all familiar with the old adage: do it right or do it twice. Companies that don’t consult a professional at the outset often end up having to redo their processes from scratch. That can prove costly.
For example, some companies choose to have replaceable rules rather than a constitution when they first establish themselves. Replaceable rules are an easy way to manage your company’s governance and a perfectly valid choice for many companies. However, if that company has also chosen a class of shares with no voting rights and no dividends, the lack of a constitution will present a problem: the replaceable rules do not set out the rights and restrictions that attach to different classes of share.
At that point, you’ll need to hire a lawyer to fix the issue, costing you more in time and money than if you’d sought professional advice at the beginning.
Avoid the stress of being non-compliant at audit time
Companies who don’t create or update their required paperwork can also find themselves with a tangled mess. Take the example of an international company with around 70 individual entities who received an ASIC letter stating their intention to review the company binders. In some cases, no binder even existed: in others, they hadn’t been updated since the day they’d been incorporated. This meant that the company was non-compliant.
The solution, to create paperwork from scratch using records going back years, cost that company far more than they would have paid to establish and monitor their records on an annual basis.
Set yourself up for future business success
This problem occurs at the end of a company’s life as well.
In the past, many companies have taken advantage of a ‘loophole’ to save money: rather than pay a fee to have the company deregistered at the end of its life, they simply don’t pay the renewal fee and let ASIC deregister the company ‘for free’.
That’s all very well until the moment that the director of that company wants to sell or buy an asset in their own name and find that they can’t get a loan. Why? Because when you let ASIC deregister your company, everything that the company owns goes into ASIC’s possession. If there was a car or a building in the company name, it’s now owned by ASIC.
For good measure, ASIC places the director onto the ‘bad debtor’ register, which shows up when the bank runs a credit check.
While the problem can be solved by re-registering the company, the director will find themselves presented with a bill that significantly outweighs the original re-registration fee.
What are the penalties for non-compliance?
Penalties for non-compliance vary but can be far-reaching. As a company director, you are expected to be aware of everything that the Corporations Act requires, and ASIC won’t accept “I didn’t know” as an excuse.
If you’re lucky, the only penalty will be a warning letter from ASIC requiring you to remediate the problem. You won’t be given long to do so, so you may well be looking at some serious disruption to your business in order to comply.
If you’re less lucky, or fail to fix the issues within the given timeframe, ASIC also has the power to levy significant fines. Those can be up to $200,000 for individuals and $1M for companies, and may even increase in the future.
Serious non-compliance issues involving misconduct can amount to a criminal offence, meaning jail time for company office holders.
While you’ll enjoy more of the benefits of outsourcing compliance to a professional if you do so at the outset, it can also help in your response to ASIC. If you receive a letter requiring you to fix a problem, showing ASIC that you’ve employed a company compliance professional goes a long way to convincing them that you take your responsibilities seriously.
If you’d like to know more about how you can outsource your company compliance, get in touch with CCASA. We’re based in Melbourne and Perth and have customers all over Australia.