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Doing Business in Australia | Establishing a business presence

6 mins  15.05.2018

A foreign company establishing a business presence in Australia usually establishes an Australian subsidiary company or establishes a branch office registering itself as doing business in Australia.

Significant practical differences between establishing a subsidiary company and doing business through a branch office are discussed.


Key takeouts


For taxation purposes, trading companies require an Australian Business Number (ABN), which is issued by the Australian Tax Office.

There are significant practical differences between establishing a subsidiary company and doing business through a branch office in Australia.
Company law in Australia is regulated by a national scheme.

Overview

A foreign company establishing a business presence in Australia usually establishes an Australian subsidiary company or establishes a branch office registering itself as doing business in Australia.

The significant practical differences between establishing a subsidiary company and doing business through a branch office are that:

  • a subsidiary company is a separate legal entity and is required to have at least one director who is a resident of Australia, whereas a branch office is not a separate legal entity, and
  • a subsidiary only needs to lodge its own accounts with the Australian Securities and Investments Commission (ASIC) and may be exempted from that requirement if it is a small company, whereas a branch office must lodge the accounts for the foreign company (not just the accounts for the branch office).

Business in Australia may be conducted through any of the following structures:

  • company
  • partnership
  • joint venture
  • trust
  • sole trader.

Companies

Types of companies

Four types of companies may be incorporated in Australia:

  • a company limited by shares (public and proprietary)
  • a company limited by guarantee
  • an unlimited company (public and proprietary)
  • a no liability company (available only where the entity’s business is limited to mining).

The type of company incorporated will depend on the nature of the business or activity.

There are more than one million companies registered in Australia, 98% of which are either public or proprietary companies limited by shares. Members of a company limited by shares contribute capital by subscribing and paying for shares in that company and their liability is limited to the unpaid amount on those shares.

Proprietary companies are the most common because they have simple and cost-effective administration requirements.

A proprietary company, which may be further classified as small or large, is a private company designed for a relatively small group of persons (maximum of 50 non-employee members) that places restrictions on the transfer of its shares.

A public company may have a much larger membership and does not have to be subject to these transfer restrictions.

Registration

To register a company, an application is made to the Australian Securities and Investment Commission (ASIC). On registration, each company is allocated an Australian Company Number (ACN), a unique identifying number.

For taxation purposes, trading companies also require an Australian Business Number (ABN), which is issued by the Australian Tax Office.

Registration entitles a company to carry on business anywhere in Australia. Each company must:

  • nominate the state in which it will be registered
  • register its name (limited liability companies must include ‘Limited’ or ‘Ltd’ in their name and proprietary companies must also include ‘Proprietary’ or ‘Pty’)
  • have a registered office, which must be located in Australia
  • appoint the directors (at least one of whom must be a resident of Australia) and other officers (which may include a Public Officer for tax administration purposes) prescribed for its type
  • provide and keep updated information about its shareholders and ultimate holding company, and
  • lodge statements and financial reports as prescribed for its type and circumstances.

Provided that all necessary information is available, a company can be registered by ASIC within one business day.

Regulation

Company law in Australia is regulated by a national scheme. The Corporations Act and the Australian Securities and Investments Commission Act govern companies, securities and futures law in Australia.

This legislation was enacted by the federal parliament following a referral of power from each of the Australian states and territories.

The activities of companies listed on the Australian Stock Exchange Limited (ASX) are also regulated by the ASX’s Listing Rules.

Fundraising

A proprietary company is prohibited from raising funds from the public and a public company must comply with the fundraising provisions of the Corporations Act.

Subject to certain excepted circumstances (for example, an offer to ‘wholesale’ investors), an offer of securities must be accompanied by a disclosure document.

Depending on the size and nature of the offering, the disclosure document may be a prospectus, profile statement or offer information statement.

Partnerships

In Australia, a partnership is the relationship that exists between persons carrying on a business in common, with a view to profit. In addition to any agreement between the partners, partnerships are regulated by the Partnership Acts of each state and territory. Because a partnership is not a separate legal entity:

  • each partner is the agent of the other partners and may make contracts, undertake obligations and dispose of partnership property on behalf of the partnership in the ordinary course of the partnership business
  • arrangements between partners will protect them in their relationship with each other
  • third parties without knowledge to the contrary, however, are protected from actions committed by partners beyond their authority
  • each partner is personally liable, jointly and severally, for the liabilities of the partnership. The liability of each partner is unlimited except in the case of limited partnerships when the property of the partnership is owned by the partners personally, and
  • the partnership must submit an annual tax return disclosing its income, outgoings and the distribution of profits to partners, although it is the partners individually who must pay tax on their share of partnership profits and not the partnership as a whole. Such profits will become part of each partner’s other income (or losses).

If a partnership carries on business other than under the names of the partners, its business name must be registered in each relevant state and territory.
Quite often, a partnership will appoint a company to carry on the partnership business and act as an agent for the partners.

A form of limited partnership may be formed in Victoria, Queensland, New South Wales, Western Australia, South Australia and Tasmania, but not in the Australian Capital Territory or the Northern Territory. A limited partnership must have at least one limited partner (a partner whose liability is limited) and one general partner (a partner whose liability is unlimited). A limited partnership is taxed as a company.

Joint ventures

A joint venture is established by parties wishing to share the product of an enterprise as opposed to sharing the profits. Joint ventures are common in the mining industry. They are not separate legal structures and are governed by the terms of the agreement between the joint venturers and by the common law.

Joint venturers often appoint a company to manage the business of the joint venture. Although not strictly correct, the term ‘joint venture’ is often used by business people to refer to:

  • a special purpose proprietary company where two or more parties have subscribed for shares to carry out a project, and
  • a partnership between two or more parties carrying on a business with a view to making a profit.

A true joint venture does not itself receive income. Only the participants in the joint venture actually receive income, which arises when they sell the product they receive from the joint venture. The income arising from the products of a joint venture can be aggregated with all other income and expenses of a party.

Trusts

In a trust structure, the assets of the business are held by a trustee, which carries on the business on behalf of the beneficiaries. A trust will be one of three types: unit, fixed or discretionary. Trusts may be private or public. A public trust can be listed.

The usual unit trust structure provides for beneficiaries to hold units to which entitlements attach and which may be transferred in a similar way to shares in a company. Income arising from a trust is taxed in the hands of the beneficiary rather than the trustee.

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