The financial assistance provisions in the Corporations Act 2001 provides a way for a company to loan money to another legal entity, whether it be a person or a company, so that they can purchase shares in the original company. The financial assistance provisions can be complex, with difficult legal concepts and definitions that can be tough to understand.
That’s why we’re here to break down the ‘legalese’ to help you understand ‘financial assistance’ and how it can be implemented within your business. Here are five things you need to know about the financial assistance provisions and how these provisions can assist your business.
Five things you need to know about ‘Financial Assistance’ in the Corporations Act
1. Financial assistance must not harm company/shareholder interests nor the company’s ability to pay its debt
The interests of the company’s shareholders must be taken into consideration if financial assistance is something that you’re thinking of offering through your company.
2. This can be bypassed if the assistance is approved by shareholders
This means that financial assistance can be provided even if it harms company/shareholder interests but only if approval is given by the company’s own shareholders. This requires either:
- A special resolution to be passed at a general meeting of the company (the person who the financial assistance may be given to cannot vote in favour of the resolution); or
- A resolution agreed at a general meeting by all ordinary shareholders.
3. A company can provide financial assistance if it is exempted from the above requirements
Some of the exemptions that can be provided are if the company:
- Loans money for acquiring part ownership or partly-paid shares;
- Enters an agreement where someone makes payments to the company by installments;
- Is a financial institution; or
- Is a subsidiary of a borrower in relation to debentures.
Please note that this is not an exhaustive list – there are more exemptions that can apply to your company in other circumstances, such as court-ordered assistance, or share buybacks.
4. Company is not liable if financial assistance does not match the above requirements
If a company doesn’t comply with the above requirements, the company cannot be held liable for the offence. However, any person who is involved in the company’s provision of financial assistance will be liable, and may be subject to a civil penalty.
5. Financial assistance is not made invalid if the company did not comply to requirements
This means that even if the company failed to meet the requirements mentioned above, the financial assistance can still be valid and recognised, regardless of any company oversight.
And there you have it – five things you need to know about the financial assistance provisions in the Corporations Act 2001. This is only a brief guide on the topic of financial assistance and its limitations within Australia, it is imperative to seek legal advice before taking any action.
If you are considering loaning money under a financial assistance scheme, LawPath recommends getting in touch with a commercial lawyer to ensure that you are aware of your own duties and obligations under the law.
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