In Short
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Notify ASIC Promptly: After issuing shares, update your company’s Members Register and inform the Australian Securities and Investments Commission (ASIC) within 28 days to avoid late fees.
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Late Notification Consequences: Failing to notify ASIC on time can result in late fees: $80 if up to one month late and $333 if over one month late.
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Legal Implications: Neglecting to notify ASIC may lead to legal issues and potential penalties, including breaches of directors’ duties.
Tips for Businesses
Always update your Members Register immediately after issuing shares and notify ASIC within the required 28-day period to maintain compliance and avoid penalties. Regularly review your company’s records and procedures to ensure all statutory obligations are met promptly.
When an existing shareholder or potential investor subscribes to shares in your company, your company will need to issue them with shares. The actual issuance of the shares is usually the last step in the process after the key agreements have been signed and any money has been paid to the company. To issue someone with shares, your company must follow a specific process. Once you have issued the shares, you will also need to notify The Australian Securities and Investments Commission (ASIC). But what happens if you fail to complete this step? This article will outline:
- what happens if you issue shares without notifying ASIC;
- whether the shares have actually been issued; and
- what your next steps should be.
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What is Share Issuance?
Share issuance is the process of providing shares to a shareholder. After you have signed all relevant agreements and the shareholder has paid for the shares, your company will issue shares to that shareholder. The process of issuing shares usually involves the following:
- approval (generally obtained via board or shareholder resolutions. This will depend on your company’s shareholders agreement or its constitution);
- a share subscription document (where the new shareholder applies for their shares);
- a share certificate (given to the new shareholder when the shares are issued);
- updating the Company Members Register (this is the most important step, as shares are legally issued when issuance is recorded in the Members Register); and
- notifying ASIC (you will need to notify ASIC within 28 days of issuing the shares).
ASIC Notification
As set out above, the last step in the share issuance process is to notify ASIC within 28 days of the share issuance. The date of the share issuance is when your company updates its Members Register to reflect the issuance.
It is important to understand that you are only required to notify ASIC of any changes once they occur. This means that you must update ASIC after you issue the shares rather than when the shares are issued to the shareholder. You can notify ASIC online using the ASIC portal.
The changes that you will need to notify ASIC include the following:
- a change in the company’s share structure (being the number of shares that were issued); and
- names and details of any new shareholders.
What if I Did Not Update ASIC?
If you sought to issue shares without notifying ASIC, you have several options. How you fix the mistake will depend on whether or not you actually issued shares to the shareholders. If you followed the share issuance steps described above, including updating the company’s Members Register, the shares were still issued on the date recorded in the Members Register. In this case, you can simply still update ASIC online. However, if more than 28 days have passed, you must pay a late fee. As of October 2019, this fee will amount to the following:
- $80 for up to one month late; or
- $333 for over one month late.
If you had not updated ASIC and failed to update your company’s Members Register, the shares probably would not have been issued. In this case, you must complete all the standard steps to issue shares, including preparing any missing resolutions or share certificates and then record the issuance in the Members Register. The date of issuance will not be the earlier date that you thought you had issued the shares. Instead, it will be the date recorded in the Members Register.
Additional Complications
While failing to notify ASIC of a share issuance does not invalidate the actual issuance of shares, it can have profound legal and financial implications for your company. Companies that fail to meet their ASIC notification obligations may face penalties beyond the late lodgment fees. Under the Corporations Act 2001 (Cth), ASIC has the power to issue infringement notices and pursue legal action against companies that consistently fail to comply with their reporting obligations. This can result in significant fines and potential reputational damage.
Additionally, having incorrect information on ASIC’s public register can create complications during due diligence processes for future investments or company sales, as potential investors or purchasers typically rely on ASIC records to verify a company’s share structure and ownership. It may also cause issues when seeking financing, as lenders often check ASIC records as part of their assessment process when creating a profile for your company.
While the shares themselves remain valid despite the failure to notify ASIC, maintaining accurate and timely ASIC notifications is crucial for your company’s legal compliance and business operations. Moreover, this is crucial to avoid any breaches of Directors’ Duties for the company’s directors.
Key Takeaways
If you are issuing shares in your company, you must update your Members Register to reflect this. As part of the share issuance process, your company will also need to notify ASIC that the share issuance occurred. ASIC will need to be notified within 28 days of the issuance. If you forget to update ASIC, there are ways to rectify the mistake.
If you require assistance issuing shares in your company or notifying ASIC of share issuance, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
What happens if I don’t notify ASIC after issuing shares?
If you fail to notify ASIC within 28 days, you may have to pay a late fee. Note that $80 if up to one month late, $333 if over one month late. Ongoing non-compliance could lead to ASIC penalties and legal risks for company directors.
Have the shares been issued if I didn’t update ASIC?
Yes, as long as you followed all necessary steps, including updating the Members Register. If the register was not updated, the shares were not legally issued. Moreover, you must complete the issuance process properly.
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