Clifford Gouldson advises both local and international companies on issues relating to structuring, corporate regulation and risk, financing, workplace and employee matters and property matters amongst others.
Our work provides the foundation on which successful businesses are built, bought and sold.
Outlined below is information that is relevant to this corporate foundation that can be applied to both local companies and also international companies looking to establish a presence in Australia.
Which Entity in Australia?
When a company from overseas or locally wants to conduct business in Australia, there are a few different options. The main options used are:
Branch
It is possible for foreign companies to conduct business in Australia through a branch office. A foreign company can establish a branch in Australia by registering with the Australian Securities and Investments Commission (ASIC) as a foreign company carrying on business in Australia. It must also appoint a local agent who will be responsible for ensuring compliance by the foreign company with the Corporations Act 2001 (Cth) (Corporations Act).
Proprietary Company
A proprietary company is a limited liability company designed for 50 shareholders or less. It is the most common type of company in Australia. It is simpler and less expensive to administer than a public company. Directors manage the company through a board of directors, who can be appointed by other directors or by shareholders, and can be removed by an ordinary resolution of the shareholders.
Public Company
A similar in concept to a proprietary company but there is no limit on the number of shareholders. Subject to meeting onerous disclosure requirements, there is no limit on the ability of a public company to raise funds from the public.
Note: Under Australian Law there are other legal entities available for consideration, including unlimited liability companies, companies limited by guarantee and no liability companies. These are rarely used, and when used it is in unique circumstances unrelated to general business activities.
In addition, partnerships, discretionary and fixed unit trusts, joint ventures and sole trader structures are also available for operating a business from within Australia. These are increasingly becoming less common.
What Steps to Set-Up an Entity in Australia?
Branch
The following steps are typically required:
- register with ASIC to receive an Australian Registered Body Number (ARBN)
- the foreign company has full legal responsibility for the actions of the Australian branch – so no separate legal entity
- appoint at least one local agent, who is responsible for compliance with the Corporations Act, including personal liability for breaches
- nominate and maintain a registered office in Australia
- taxed as a separate entity on all income sourced from Australia
- Foreign Investment Review Board approval likely to be required at various stages of business activity
Proprietary Company
The following steps are typically required:
- must have 1 to 50 shareholders (excluding employees shareholders)
- no personal liability for shareholders beyond unpaid value of shares held
- taxed on earnings at appropriate company tax rate
- able to frank dividends paid to shareholders
- establish a board of directors
- decide on classes of shares to be available to issue
- decide on share issue price from time to time
- prohibited from engaging in public fundraising activities under the Corporations Act
Public Company
- must have at least one shareholder, but can have unlimited shareholders
- no personal liability for shareholders beyond unpaid value of shares held
- taxed on earnings at appropriate company tax rate
- able to frank dividends paid to shareholders
- establish a board of directors
- decide on classes of shares to be available to issue
- decide on share issue price from time to time
- can offer shares to the public subject to compliance with Corporations Act including as to prospectus
Note: Under Australian Law there are other legal entities available for consideration, including unlimited liability companies, companies limited by guarantee and no liability companies. These are rarely used, and when used it is in unique circumstances unrelated to general business activities.
In addition, partnerships, discretionary and fixed unit trusts, joint ventures and sole trader structures are also available for operating a business from within Australia. These are increasingly becoming less common.
What are the Minimum Capital Requirements?
Branch
There is no minimum capital requirement specified.
Proprietary Company
There is no minimum capital requirement specified.
Public Company
There is no minimum capital requirement specified.
What is the Legal Liability Exposure?
Branch
The foreign company has total legal responsibility for all actions and omissions of the branch in Australia. It can be sued. The local agent may also be sued including for penalties or breaches of the Corporations Act by the branch.
Proprietary Company
A shareholder of a proprietary company is limited in most cases to the extent of their initial investment, plus any unpaid amount of the issue price of their shares.
Public Company
A shareholder of a public company is limited in most cases to the extent of their initial investment, plus any unpaid amount of the issue price of their shares.
How is the Company Taxed in Australia?
Branch
All income sourced from Australia will be taxed on the branch as a separate legal entity in Australia. The branch will also be required to register for and report on Goods & Services Tax (GST), which is similar to Value Added Tax (VAT) in other jurisdictions.
Proprietary Company
Australia taxes its proprietary companies at tax rates depending on the size of the company. The rates are fixed, and calculated on the net profits of the company (income tax) and on the disposal gains made on the sale of its assets (capital gains tax). A company will usually distribute profits by way of dividends to its shareholders, “franking” those payments and in effect giving Australian tax resident recipient shareholders a credit for the tax paid by the company. This avoids double taxation in Australia.
Public Company
Australia taxes its public companies at tax rates depending on the size of the company. The rates are fixed, and calculated on the net profits of the company (income tax) and on the disposal gains made on the sale of its assets (capital gains tax). A company will usually distribute profits by way of dividends to its shareholders, “franking” those payments and in effect giving Australian tax resident recipient shareholders a credit for the tax paid by the company. This avoids double taxation in Australia.
What is the Process for Incorporating in Australia?
Branch
The registration with ASIC of a branch in Australia involves a need to reserve the company’s foreign name to ensure it is available within Australia. This requires an ASIC application form, together with a certified (translated if necessary) copy of the company’s home jurisdiction certificate of registration and constituent documents. Processing of this application can take up to 28 days.
Proprietary Company
An application for registration as an Australian proprietary company must to be lodged with ASIC. A fee is payable at the time of lodgement. ASIC will issue to the company a certificate of incorporation and an Australian company number (ACN) upon successful processing. Taxation registrations are separate from the incorporation process, and are undertaken directly with the Australian Taxation Office.
Public Company
An application for registration as an Australian public company must to be lodged with ASIC. A fee is payable at the time of lodgement. ASIC will issue to the company a certificate of incorporation and an Australian company number (ACN) upon successful processing. Taxation registrations are separate from the incorporation process, and are undertaken directly with the Australian Taxation Office.
What are the Shareholder Meeting Requirements in Australia?
Branch
There are no shareholder meeting requirements in Australia.
Proprietary Company
There is no mandatory requirement for an annual general meeting of shareholders to be held, but actions requiring shareholder approval under the company’s constituent documents require a resolution to be passed by the shareholders holding the requisite majority of voting shares at a shareholders’ meeting or approved by all shareholders by way of a written resolution. The most common requisite majority is a simple majority for most matters, but 75% for certain critical matters.
Public Company
An Australian public company must hold an annual general meeting within 18 months of incorporation and within 5 months of the end of its financial year. Other meetings may be held as determined by the shareholders.
What Requirements are there for Board of Director Meetings in Australia?
Branch
There are no board of director meeting requirements in Australia.
Proprietary Company
Usually there would be at least one meeting of directors held each year (eg. to confirm solvency, or to pass or approve a set of financial statements), but there is no prescribed minimum.
Public Company
Usually there would be at least one meeting of directors held each year (eg. to confirm solvency, or to pass or approve a set of financial statements), but there is no prescribed minimum.
What Annual Company Tax Requirements Exist in Australia?
Branch
The branch must lodge a company tax return each year regardless of the financial performance and expected tax payable.
Proprietary Company
The company must lodge a company tax return each year regardless of the financial performance and expected tax payable.
Public Company
The company must lodge a company tax return each year regardless of the financial performance and expected tax payable.
What Annual Business Registration Requirements are there in Australia?
Branch
A branch must lodge a balance sheet, profit and loss statement and cash flow statement with ASIC each year.
Proprietary Company
An Australian proprietary company must confirm its corporate details and pay a renewal fee to ASIC each year on the anniversary of its incorporation. There may also be additional annual corporate maintenance requirements (see below).
Public Company
An Australian public company must confirm its corporate details and pay a renewal fee to ASIC each year on the anniversary of its incorporation. There may also be additional annual corporate maintenance requirements (see below).
What if the Business Expands?
Branch
There will be no change to reporting requirements as the business expands in Australia.
Proprietary Company
There will be no change to reporting requirements as the business expands in Australia, but financial statement lodgement requirements in Australia depend on the revenue, employee and total asset numbers of the business, so these thresholds need to be identified and monitored to ensure ongoing compliance.
Public Company
There will be no change to reporting requirements as the business expands in Australia.
How does the Business Exit Australia?
Branch
Within 7 days after ceasing to carry on business in Australia the registered foreign company must lodge a formal notice of ceasing to trade with ASIC. An agent should notify ASIC immediately it becomes aware of the fact that a foreign company has been dissolved or deregistered in its home of incorporation. In that case ASIC will remove the foreign company’s name from the ARBN register.
Proprietary Company
Solvent process – application to deregister can be lodged with ASIC.
Insolvent process – a formal process involving appointing a liquidator, proof of debts, collecting of assets, meeting liabilities including in priority and distributing surplus to shareholders.
Public Company
Solvent process – application to deregister can be lodged with ASIC.
Insolvent process – a formal process involving appointing a liquidator, proof of debts, collecting of assets, meeting liabilities including in priority and distributing surplus to shareholders.
What are Australia’s Annual Corporate Maintenance Obligations?
Branch
Once a foreign company is registered as an ARBN, it must lodge with ASIC at least once every calendar year and at least every 15 months:
- a balance sheet, profit and loss statement and cash flow statement
- any other documents it is required to lodge in its home country
- the ASIC prescribed lodgement fee
- any changes to directors, agent and office details
Proprietary Company
Large proprietary company – confirm corporate details, pay requisite ASIC fee and lodge audited financial statements
Small proprietary company – confirm corporate details and pay requisite ASIC fee
A large proprietary company is one with two of the following at the end of a financial year: more than a certain amount of consolidated revenue; gross assets exceeding a threshold; or over a critical number of employees.
Public Company
An Australian public company must confirm its corporate details, pay a requisite ASIC fee and lodge audited financial statements each year.
How many Directors / Officers are Required in Australia?
Branch
There is no requirement for a local director only for one local agent.
Proprietary Company
Must have at least one director, and at least one ordinarily resident in Australia.
Public Company
Must have at least three directors, at least two of whom must ordinarily reside in Australia.
Does the Company Require a Company Secretary in Australia?
Branch
There is no corporate secretary requirement in Australia.
Proprietary Company
There is no corporate secretary requirement in Australia. If the company has more than one secretary, at least one must ordinarily reside in Australia.
Public Company
Must have at least one company secretary, and at lease one must ordinarily reside in Australia.
Does the Company Require a physical Office Lease in Australia?
Branch
Must have a registered office in Australia. This does not have to be owned or leased.
Proprietary Company
Must have a registered office in Australia. This does not have to be owned or leased, but the person who owns or leases the site of the registered office must consent in writing to that address being the registered office of the proprietary company.
Public Company
Must have a registered office in Australia. This does not have to be owned or leased, but the person who owns or leases the site of the registered office must consent in writing to that address being the registered office of the public company.
Is there Public Disclosure of the Identity of Directors, Officers and Shareholders in Australia?
Branch
Yes on ASIC databases
Proprietary Company
Yes on ASIC databases
Public Company
Yes on ASIC databases – plus the registered office of an Australian public company must be open to the public for at least 3 hours between 9:00 am and 5:00 pm each business day, with a display of its name and the words “registered office” at its registered office.
Are there any Quorum Requirements for Shareholder and Board Director Meetings in Australia?
Branch
There are no Australian requirements – the foreign company must comply with its home constituent requirements.
Proprietary Company
Shareholders – Unless the constituent documents specify otherwise, at least two shareholders must be present for the full meeting. A proprietary company may pass a resolution without a general meeting being held if all shareholders entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document.
Directors – Unless the constituent documents specify otherwise, two directors is sufficient for a directors’ board meeting. The directors may pass a resolution without a directors’ meeting if all the directors entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document.
Public Company
Shareholders – Unless the constituent documents specify otherwise, at least two shareholders must be present for the full meeting. A proprietary company may pass a resolution without a general meeting being held if all shareholders entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document.
Directors – Unless the constituent documents specify otherwise, two directors is sufficient for a directors’ board meeting. The directors may pass a resolution without a directors’ meeting if all the directors entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document.
Does a Bank Account Need to be Opened?
Branch
Not required before register a foreign company in Australia.
Proprietary Company
Not require before incorporating in Australia.
Public Company
Not require before incorporating in Australia.
If an Auditor is Required does the Auditor have to be Australian?
Branch
Yes
Proprietary Company
Large proprietary company – yes
Small proprietary company – no unless a “disclosing entity”, controlled by a foreign company whose financials are not audited, or shareholders with at least 5% of ordinary shares or ASIC requires it.
Public Company
Yes
What Other Licenses are Required in Australia?
All
Apart from the usual ASIC registration, the following may be required:
- an Australian Business Number (ABN)
- an Australian Tax File Number (TFN)
- a GST Registration
- any licence or other industry or profession specific regulatory requirement (corporate or individuals within corporation)