What is the Profit Test for an IPO
To meet the profit test, the company must satisfy each of the following:
Going concern – the company must be a going concern, or the successor of a going concern.
3 years profit – the company must have an aggregated operating profit from continuing operations before tax for the past 3 full financial years of at least $1 million.
Last year’s profit – the company’s consolidated operating profit from continuing operations before tax for the 12 months to a date no more than 2 months before applying for admission must have been at least $500,000.
Same business – the company must have been in the same predominant business activity for at least the last 3 full financial years.
Unqualified audited accounts – the company must give ASX unqualified audited financial statements for the last 3 full financial years and an unqualified reviewed pro-forma balance sheet showing the effect of any material transactions (including any acquisitions, disposals or issues of securities) expected to occur in conjunction with the company’s admission (unless ASX agrees the pro-forma balance sheet is not needed). The review must be conducted by a registered company auditor or an independent accountant. Unqualified audited or reviewed financial statements for the last half year must also be provided if the company lodges its listing application more than 6 months and 75 days into the current financial year. In each case the audit report or review must be given to ASX.
Directors’ statement – the company’s fundraising document must contain a statement confirming that the directors have made enquiries and nothing has come to their attention to suggest that the company is not continuing to earn profit from continuing operations up to the date of the fundraising document. Alternatively, the company must give ASX a separate statement signed by all its directors, which ASX will then release to market as pre-quotation disclosure.
A company that has not conducted the same main business activity during the last 3 full financial years or that is not able to provide audited accounts for the last 3 full financial years which meet the requirements above must apply for admission under the assets test, even if it has otherwise achieved the required profit levels to be admitted under the profit test.
For more information on the IPO process, check out our discussion paper here.
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For more information, please contact Gavin McInnes on 07 3367 8681 or g.mcinnes@grmlaw.com.au.
The information contained in this article is general in nature and cannot be regarded as anything more than general comment. Readers of this article should not act on the basis of this comment without consulting one of GRM LAW 's legal practitioners who will consider their particular circumstances.
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