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Business Structures

If you are a company and you are intending to carry on business in Australia you are required by the Corporations Act to either set up a local subsidiary (i.e. incorporate an Australian company) or to register as a foreign company (i.e. establish a Branch Office). In our experience, most foreign companies establish a separate subsidiary company to operate their business in Australia as opposed to a Branch Office. While there are various types of companies, the most common are Public Companies and Proprietary Limited Companies both limited by shares. Other structures to operate a business in Australia include a Sole Trader, a Partnership, under a Trust structure or Joint Venture. As there are significant consequences depending on the business structure you choose, you should always consult a local accountant and lawyer for advice before you start conducting business in Australia.

It is advisable to discuss the question of whether or not you are "carrying on business" in Australia with your Pym's Technology lawyer.

Public Company

A public company is a company that is listed on the Australian Stock Exchange. As in other jurisdictions, a public company has the ability to raise funds from the general public, subject to certain disclosure requirements being met. If you want to establish a public company in Australia you will need at least 3 directors, 2 of which are Australian residents.

Proprietary Limited Company

A company is an independent legal entity able to do business in its own right. The shareholders own the company and directors run the company. The directors of a company, as well as company employees, can be shareholders. In most cases if a person sues a company the person suing will only have recourse to the assets of the company, and not the assets of any directors or shareholders. If you want to establish a proprietary limited company you will need at least 1 director who is an Australian resident.

This is the most common form of company in Australia.

For more information please see our Guide to Obligations of Proprietary Limited Companies which provides a summary of requirements for setting up and operating a proprietary limited company in Australia

Sole Trader

A sole trader is the simplest business structure and consists of an individual trading under its own name. You may operate under your own name or under a registered business name. The sole trader controls and manages the business and is personally responsible for all debts and liabilities.

Partnership

Partnerships are formal or informal relationships established with suppliers, competitors and others in your industry that bring competitive benefits to your company. Whether the partnership is formal or informal, they are typically set up for the longer term.

A partnership involves two or more people doing business together with a view to sharing profits. The partnership brings benefits in the treatment of income, expenses and taxes. Partnerships in this form are a common legal structure used by professionals in setting up their businesses with other professionals. Most of these partnerships use a written partnership agreement.

There are different laws regulating partnerships in the different States and Territories of Australia.

In some cases, the law can presume or “deem” partnerships to exist, meaning that the partners may bear personal unlimited liability for any debts that the partnership may generate. This is a significant risk. It is therefore vital to seek legal and financial advice before considering any structuring issues in order to ensure that you are properly protected.

Trusts

A trust is a legal relationship whereby a trustee, being the legal owner of trust property, deals with that property for the benefit of some other person or persons (the beneficiaries) or for some object permitted by law, such as a charitable object. A trust is not a separate legal entity and does not enjoy limited liability, although it is common to use a company as the trustee and thereby limit the potential liability of the trustee. 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 used to carry on businesses are commonly unit trusts or discretionary trusts. In a unit trust, the beneficial interests in the trust are divided into units, which may be transferred in similar fashion 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 however, the identity or interest of the beneficiary is not determined at the time the trust is created.

There are a number of tax advantages (usually for small companies closely associated with the directors) for using a trust. Tax advice should always be sought.

Joint Ventures

Joint ventures are more formal relationships developed between two or more legal entities (usually companies), and are created either as unincorporated joint ventures (using a legally-binding agreement) or as an incorporated joint venture (using a company established for the purpose of the joint venture, with the joint venturers acquiring shares in the company). Joint ventures are more complex arrangements. If you are thinking about creating one, have been asked to enter into one or are profit sharing, you should seek legal, financial and tax advice.

Branch Office

If you do not want to set up an Australian subsidiary of your overseas parent company and you are carrying on business in Australia you must set up a branch office of your organisation in Australia. It is advisable to discuss the question of whether or not you are "carrying on business" in Australia with your Pym's Technology lawyer.

To register a branch office, you will need to submit the necessary documentation with ASIC for registration. The requirements for registering a branch office of a foreign company include:

lodging a certified copy of your constitution and certificate of incorporation and a list of all current directors, their contact details, place and date of birth;
details of any security over the company’s assets in Australia;
appointing a local agent (the agent may also be liable for acts of the foreign company in Australia).

You will also have ongoing compliance obligations that your foreign company will need to comply with annually. Importantly, you should discuss these ongoing compliance obligations with your lawyer and accountant.

You should discuss with your accountant what taxes will be applicable to each structure and what taxes will apply to the repatriation of profits.

Next, learn about Company Formation and Administration.

Business Structures Company Formation and Administration Government Procurement Foreign Investment Guidelines Intellectual Property Guide to Obligations of Proprietary Limited Companies Making Decisions—Resolutions for Proprietary Limited Companies

Company Constitution

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