If you are an overseas business or an Australian entity wishing to trade with an overseas company that wants to come to Australia to do business, there are a number of options available.
An overseas entity may decide to open a representative office in Australia by establishing an Australian subsidiary company or register as a foreign company in Australia. The overseas company or Australian entity will need to consider the legal requirements and tax implications of their choice in light of all the circumstances of their business and future plans.
In Australia, companies and other registrable bodies are regulated by the Corporations Act 2001 (Cth) (Corporations Act), which is administered by the Australian Securities & Investments Commission (ASIC). There is also other federal and state legislation, which may apply depending on the circumstances, the “proposed business in Australia”. Furthermore, legislation of different Australian States and Territories on the same matter is not necessarily identical or similar and may need to be reviewed when you choose or change the Australia State jurisdiction.
What follows is a brief overview of the commonly used business structures and other considerations of establishing a business in Australia.
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Choosing a Business Structure
1.1 Australian Company
Overseas businesses wishing to expand to Australia often establish their Australian subsidiary company and carry on business in the name of the Australian company.
The most commonly used entity is a company limited by shares being either a proprietary company (also referred to as a private company) or a public company.
Importantly, the liability of the shareholders is limited to the amount owed on the shares held by the owner of the shares. The day-to-day management and control of a company is vested in the board of directors who are appointed by the shareholders.
A proprietary company must have at least one member but may not have more than 50 non-employee members and may not raise funds from the public.
A public company has no limits on membership, may raise funds from the public and may be listed on the Australian Securities Exchange (ASX).
A proprietary company must have at least one director and that director must be ordinarily resident in Australia (other directors of a proprietary company may reside outside Australia). A public company however must have at least three directors, two of whom must be ordinarily resident in Australia.
A proprietary company is not required to have a company secretary. A public company must have at least one company secretary ordinarily resident in Australia.
1.2 Registered Foreign Company
As an alternative, an overseas business may choose to carry on business in Australia in its own name and register as a foreign company with ASIC. Furthermore, under section 601CD of the Corporations Act overseas companies must register with ASIC if they ‘carry on a business’ in Australia.
Whether they carrying on business in Australia needs to be determined based on their specific activities and whether these activities amount to ‘carrying on a business’ as outlined in section 21 of the Corporations Act. The relevant factors include whether a place of business has been or will be established in Australia, the nature of both the business and operational activities in Australia, the intended duration and frequency of those activities in Australia.
An overseas company applying for registration as a foreign company with ASIC must appoint a local agent who may be either a natural person or a company resident in Australia. Such local agent will be responsible for the company’s compliance with the Corporations Act and is personally liable for any its contraventions.
A foreign registered company must also must have a registered office in Australia which must be open at least 3 hours each business day.
A registered foreign company may only trade under the specific name registered with ASIC.
Unless an exemption applies, registered foreign companies must annually lodge with ASIC a copy of their balance sheet, profit and loss statement, cash flow statement for the previous financial year and any other documents that the company is required to prepare under the laws applicable in its place of incorporation.
1.3 Joint Venture
In Australia, the term ‘joint venture’ is used to refer to a variety of forms of legal association between investors. Generally, a joint venture is an agreement between two or more parties for the purposes of carrying on a business or undertaking. There is no settled legislative or common law definition of a joint venture.
There are three common types of joint ventures in Australia:
- an incorporated joint venture – a separate company is incorporated to pursue the interests of the joint venturers who are shareholders in the company;
- a unit trust with a corporate trustee – the beneficial interest in the trust property is divided into units and the joint ventures are unit holders and may deal independently with their units;
- an unincorporated joint venture – the joint ventures have a contractual relationship which lacks both corporate form and equity capital, and which may or may not qualify as a partnership for taxation purposes or under partnership legislation.
1.4 Trust
A trust is a legal relationship whereby a trustee is the legal owner of trust property and deals with that property for the benefit of some other person or person (beneficiaries) or for some object permitted by law, such as a charitable object. A trust is not a separate legal entity and trustee’s liability is not limited. It is common to use a company as the trustee and limit the potential liability of the individuals acting as directors of the trustee company.
A trustee owes a high standard of care to beneficiaries, and is subject to a number of duties. These include the duty to act in good faith, to avoid conflicts of interest, to make full disclosure to beneficiaries and not to make a secret profit or gain.
Trusts commonly used to carry on businesses are unit trusts and discretionary trusts. In a unit trust, the beneficial interests in the trust are divided into units, which may be transferred similar to shares in a company. The holder of a unit is entitled to a fixed share of the profit of the trust. In a discretionary trust, the identity or interest of the beneficiary is not determined at the time the trust is established.
1.5 Partnership
A partnership consists of two or more partners who can be individuals or companies carrying on business in common with a view to profit. A partnership is not a separate legal entity from the partners themselves. Partners are jointly and severally liable for all liabilities of the partnership, and this liability is unlimited. Each State and Territory has its own partnership legislation.
Partnerships are not required to file any financial information concerning the partnership on any public register. Accordingly, partnerships and partners (except corporate partners) are able to keep their financial performance confidential. Partners have to render true accounts and full information regarding all things affecting their partnership to all other partners.
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Other Considerations
2.1 Application of Foreign Law
Under section 7 of the Foreign Corporations (Applications of Laws) Act 1989 (Cth), questions relating to the following issues will be determined by reference to the law of the place of the foreign corporation’s incorporation: the status of a foreign corporation, its officers, membership or shareholders, the rights and liabilities of the officers, members or shareholders of a foreign corporation in relation to the corporation, its internal management and proceedings.
2.2 Company Administration in Australia
ASIC must be notified of changes to officeholders, the issuance of shares and the passing of certain resolutions by the shareholders of the company.
Public and large proprietary companies must lodge annual (and in some cases half-yearly) financial, directors’ and auditors’ reports with ASIC. The reports include information such as financial statements, any required disclosures, and information relating to the company’s operations during the year, and any dividends paid or shares issued during the relevant year.
Each year, ASIC provide companies with an annual statement of the company’s details within two weeks of the anniversary of its registration date. Companies are required to review the statement of details and advise ASIC if any details are incorrect. Companies also to pay the review fee to ASIC.
Companies are required to maintain a register of members, a register of security interests affecting the company’s property and, if relevant, a register of option holders and register of debenture holders.
Corporate Lawyers Sydney at Pavuk Legal can provide you with a sound legal advice in respect of establishing your business in Australia and choosing an appropriate legal structure, including but not limited to joint ventures, companies, partnerships, trusts. We can assist you with establishing your business and negotiating deal terms with your counterparties as well as preparing all necessary documentation.
We can provide assistance for a range of related legal matters, including: business name registration, copyright and intellectual property law, shareholders, partnership and joint venture agreements, transferring, buying and selling a business, capital raising, listing your business on ASX, lease agreements, asset protection, estate and succession planning, business management and administration, employment law including employment contracts, employee rights, unfair dismissal and confidentiality agreements, employee share option schemes, advice in regard to tax law including capital gain tax.
Many other essential hot topics for business owners is all found in the book Nobody Else’s Business. Nobody Else’s Business is about helping business owners live the life they want to live, now and in the future. It is the ultimate guidebook for succession planning of modern Australian businesses.
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