- Setting Up New Companies / Units / Sales offices
All types of business entities are relatively inexpensive and straight forward to set up in Australia. Generally, international investors, foreign head offices and other parties from outside Australia will choose to set up a local company.
The most common type of company which overseas investors set up is a private (“Pty”) company. That is because a Pty company requires very few shareholders. Also there are no minimum capital requirements (It is not unusual to incorporate a Pty company with a share capital of as little as A$100). This applies to any Australian company. However the company must have a registered office in Australia, and also at least one director who ordinarily resides in the country.
The other common type of company in Australia is called a public company. This has many more shareholders than a pty company. Its main advantage is that it can raise capital from individuals and other investors outside the original shareholder group. As a fund-raising prerequisite, the public company must issue a suitable disclosure document (called a prospectus) and file it with the Australian Securities & Investment Commission (“ASIC”). ASIC is Australia’s principal business regulator.
ASIC is also responsible for administering the laws relating to companies (both domestic and foreign), managed investment schemes, business names, the obligations of company directors, other corporate officers, amongst other things.
Establishing a Pty company can be done relatively quickly and without great expenditure. Incorporation costs comprising minimal government fees and modest professional fees. With all relevant information provided and with each director having obtained a director identification number, a new Pty company can be incorporated within a few days.
Before deciding on the name for a new company, it should be confirmed that the proposed name does not infringe any intellectual property rights of third parties. A company name can be reserved before incorporation takes place. Following incorporation, each company will be allocated a unique nine-digit Australian Company Number(“ACN”). Directors should ensure that the company’s name and ACN appears on all relevant public documents.
The company must appoint at least one director who ordinarily resides in Australia. Directors of Australian companies must be natural persons and at least 18 years old. If there is at least once director with ordinary residence in Australia, the company may appoint one or several foreign directors. It is mandatory for each director of an Australian company to go through an identity verification process.
As regards premises, the company may enter into either a lease from which to conduct its business, or may choose to acquire real estate to comprise the business’s location. After having identified potential lease premises (with the help of a commercial real estate agent), the landlord’s solicitor will normally prepare a lease. Legal advice should be obtained in respect of the lease. Any advice obtained should identify whether any State Retail Leases Acts will apply.
If an overseas party chooses to acquire real estate to be used as business premises, it will need to consider whether foreign investment restrictions may apply. In Australia the acquisition of real estate by foreign companies (or Australian companies with a substantial foreign shareholder) may need the approval of the Foreign Investment Review Board (FIRB). Whether FIRB’s approval is required depends on a variety of factors, including:• the value of the transaction; • the nature of the investment; • the investor’s country of origin; and • the type of land.
When acquiring real estate, particularly commercial (non-office) and industrial real estate, it is important to investigate the prior use and potential contamination of the property. Most contracts of sale of real estate will attempt to pass any environmental liability on to the new owner and require the purchaser to indemnify the seller against any current or future environmental liability.
Finally, when employing local staff, foreign head offices must be aware that Australia has some of the industrialised world’s most complex employment-related legislation. Australia has a unique system which combines, on the one hand, ‘statutory instruments’ such as Awards, Enterprises Agreements and detailed State and Federal employment laws, and on the other hand more settled common law principles.
In addition each of Australia’s six States and two Territories has its own workplace health and safety legislation (nowadays substantially harmonised), anti-discrimination laws, long service leave benefit rules and workers compensation statures, to name just a few.
- Doing business with Australian counterparties
In general terms, Australia is considered to be one of the least complicated jurisdictions in which to do business. The World Bank’s report Doing Business 2020, which compared business regulation in 190 economies, ranked Australia 14th for ease of doing business.
Australia also ranks highly for financial freedom and trading freedom.
A business enterprise in Australia may be set up and operated by
- an individual person (sole proprietor)
- a company
- a trust
- a managed investment scheme
- a partnership (of individuals, companies or trusts),
- a joint venture, or
- the branch of a foreign company
A foreign investor may set up and conduct business in Australia by means of any of these entities, or it may register as a foreign company under Australia’s principal business statute, the Corporations Act.
The choice of business entity depends on a variety of considerations, including:
- the relationship between the participants in the proposed venture
- the nature of the proposed business activities
- the level of risk or liability the proponents which to take on
- the impact of local regulation on the business and its activities
- impact of local and foreign tax laws
All of the above business entities will need to register a business name with ASIC. Otherwise the entity cannot carry on business under that name. Norte though, registering a business name does not create a separate legal entity. A prerequisite to registering a business name is that the registrant must be granted an Australian Business Number (‘ABN’), An ABN is required for the purposes of collecting and remitting Australia’s value-added tax, called ‘GST’.
As regards government incentives for doing business in Australia, the most prominent is in the realms of research & development (‘R&D”). For businesses carrying on ‘eligible’ R&D, an attractive tax rebate is available It entities the applicable entity to a tax offset’ on its R&D expenditure equal to the entity’s company tax rate plus a premium of up to 18.5%. The intent is to foster home grown research in cutting edge technologies.
Allan McDougall, Consulting Principal, Keypoint Law, Sydney, June 2023