113Proprietary companies

#### 113 Proprietary companies (1) A company must have no more than 50 non—employee shareholders if it is to: (a) be registered as a proprietary company; or (b) change to a proprietary company; or (c) remain registered as a proprietary company. > Note: Proprietary companies have different financial reporting obligations depending on whether they are small proprietary companies or large proprietary companies (see section 45A and Part 2M.3). (2) In applying subsection (1): (a) count joint holders of a particular parcel of shares as 1 person; and (b) an employee shareholder is: (i) a shareholder who is an employee of the company or of a subsidiary of the company; or (ii) a shareholder who was an employee of the company, or of a subsidiary of the company, when they became a shareholder; and (c) do not count as a shareholder any CSF shareholder of the company; and (d) do not count as a shareholder an entity, in relation to a security of the company held by the entity, if: (i) that security was originally issued to another entity pursuant to a CSF offer by the company; and (ii) unless the circumstances (if any) prescribed by the regulations for the purposes of this subparagraph exist—no securities of the company have been traded on a financial market (whether in Australia or elsewhere); and (iii) all the other requirements (if any) prescribed by the regulations for the purposes of this subparagraph are met. (3) A proprietary company must not engage in any activity that would require disclosure to investors under Chapter 6D, except for: (a) an offer of its shares, or of options in respect of its shares, to: (i) existing shareholders of the company; or (ii) employees of the company or of a subsidiary of the company; or (b) a CSF offer. (3A) An offence based on subsection (3) is an offence of strict liability. > Note: For strict liability, see section 6.1 of the Criminal Code. (4) An act or transaction is not invalid merely because of a contravention of subsection (3). > Note: If a proprietary company contravenes this section, ASIC may require it to change to a public company (see section 165).