The committee recommended that Treasury review the evidence gathered through the committee’s inquiry into the family business sector in Australia and consider consulting the stakeholders identified through the inquiry about the sector’s concerns about the effect of Div 83A of the ITAA 1997 (the employee share plan rules) on their capacity to engage suitably qualified executives. Treasury should advise government about whether appropriate support can be provided, whether through amendments to the law or other mechanisms, to address the challenges faced.
For families trading as companies, the report said the incorporation of the family unit within the business model also presents a key challenge that is unique to the sector. Section 113 of the Corporations Act 2001 states that a proprietary company must have no more than 50 non-employee shareholders. It must otherwise form as an unlisted public company, and comply with the disclosure obligations of public companies. Family business representatives argued that family companies with successive generations of shareholders can exceed 50 shareholders, which unfairly forces them to relinquish family control and triggers reporting obligations. In a 2008 inquiry conducted by this committee, Family Business Australia suggested increasing the threshold to 300 shareholders. The committee proposed an increase to 100 non-employee shareholders.
However, the government made no change to s 113. The committee said it remained unconvinced. It said that, for successful, multi-generational family businesses, the restriction in s 113 on the number of non-employee shareholders in a proprietary company may mean that large family businesses incur additional costs. This appears to be at odds with the broader policy objective of facilitating and supporting long-term business growth. The committee said family business representatives and large family businesses themselves need to put specific cases directly to government to show that the current threshold: (i) limits the expansion of family businesses beyond 50 non-employee shareholders; (ii) has had an adverse effect on family businesses that have passed the threshold and incorporated; or (iii) forces family businesses into structures that members might not otherwise choose.
The report also said there could usefully be a public policy debate relating to the economic benefits of succession planning.
The fact that family business policy issues would be directly in focus for the government is laudable. The proof of the pudding, as always, will be in the outcome. How long the review process will take is unknown at this stage, but the sooner it gets started, the better.
The committee said it hoped its report would “begin a conversation within government” that might give serious consideration to the following questions:
Perhaps there is some hope, as long as the “conversation” doesn’t take too long. SMEs and their representatives would be well advised to participate strongly in the review. I am sure they will.
Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
