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There are a number of important considerations for investors when deciding on how to enter the Australian market or when establishing a business in Australia.
Investors will generally need to choose between establishing a new company, registering as a foreign company or acquiring an existing company.
If establishing a new business, a variety of business structures are available, each with their own regulatory and tax considerations. Businesses may also need to establish their identity through a trade mark, online and/or physical presence.
The Australian Government provides a wealth of information online to allow investors to make the choices most appropriate to the nature of their business.
Australia has a set of common structures that investors can use when establishing a business. The four main types are: sole trader; partnerships; trusts; and companies.
Investors need to consider carefully which structure best suits their business needs. The business structure will determine the licences necessary to operate, as well as tax and legal implications.
Sole Trader
It is fairly easy to be established as a sole trader; the only legal entity is the individual. A sole trader is therefore personally liable for all obligations incurred in the course of the business and income earned is taxed at their personal rate.
Unlike other business structures, no specific legislation regulates sole traders. However, they may be liable to comply with legislation specific to their business.
Partnership
Two or more individuals or companies may carry on a business as a partnership. Partnerships (other than certain professional partnerships) are limited in size to 20 partners.
Most partnerships are established by a partnership agreement, which defines the partners’ rights and obligations between themselves, subject to applicable legislation. A partnership is not a separate legal entity and, as such, the partners own the assets jointly or in the proportions set out in the partnership agreement.
Partners share profits and are jointly and severally liable for the partnership’s obligations.
In some Australian states, a limited partnership may be established under which the liability of some (but not all) partners is limited to the extent of their capital contribution. However, limited liability partners cannot take part in managing the partnership.
Partnerships are largely governed by Australian state laws, common law and contract law.
Joint venture
Two or more individuals or companies may carry on a business as a joint venture. In a joint venture, at least two parties enter into an agreement to work towards the same strategic goals while remaining separate entities.
The difference between a partnership and a joint venture is that the latter is often formed for a particular project or business goal, or the contributions of the members differ in type, amount or timing. Joint ventures usually have a defined end.
They may be incorporated (as a separate legal entity) or unincorporated (a purely contractual arrangement). The rights and liabilities of the members will depend upon the terms of the joint venture.
The key difference between a partnership and an unincorporated joint venture is that in the case of the unincorporated joint venture, participants do not jointly receive income or jointly participate in the output of the venture.
In the case of a mining joint venture each participant is entitled to its specified share of the output of the venture which it can then market as it determines.
Joint ventures are governed by common law, contract law and, in the case of incorporated joint ventures, the Corporations Act 2001 (Cth).
Trust
The trustee owns the trust’s property and carries on business on behalf of the beneficiaries of the trust. The trustee is liable for meeting the trust’s obligations, but will typically have rights of recourse against the trust’s property in relation to those obligations.
The rights of beneficiaries will depend upon the terms of the trust. The beneficiaries’ entitlements may be fixed or variable, at the discretion of the trustee.
Trusts are governed by common law and contract law.
A public company may be listed on the Australian Securities Exchange. A proprietary company is limited to 50 non-employee shareholders and cannot engage in fundraising activities in Australia. However, in terms of regulations, it can be simpler and cheaper to administer a proprietary company.
A company must have a registered office in Australia and Australian resident directors (two for public companies and one for proprietary companies). A public company must also have an Australian resident company secretary; however, this is optional for proprietary companies.
There are no residency restrictions on shareholders and no general minimum capital requirements.
A company is managed by its directors but owned by its shareholders (commonly called ‘members’). Australian law and practice contains a principle of separation of responsibilities between those of the directors and the shareholders.
Directors oversee the management of the company’s day-to-day business and affairs. They also have common law and statutory obligations, such as a duty to act with care and diligence. Directors who fail to perform these duties can be found guilty of an offence. These duties may continue even after a company is deregistered.
Generally speaking the rights of the shareholders at a general meeting are to remove and appoint the directors and to deal with specific matters such as changes to the company's constitution, its capital structure and winding up.
The main duty of directors is to act in the best interests of the company. However, if the company is insolvent, or risks insolvency, they also have a duty to the company’s creditors. In such circumstances, directors must prevent the company from trading and incurring further debt. Directors who contravene the insolvent trading provisions of the Corporations Act can face civil and criminal charges.
There is currently no requirement under Australian law pursuant to which workforce representatives must be appointed as directors.
Australian companies are governed by the Corporations Act, their constituent documents and common law.
With limited exceptions, a company may be required under the Corporations Act to prepare and file annual financial statements with the Australian Securities and Investments Commission (ASIC). These statements must be prepared in accordance with the Corporations Act and Australian Accounting Standards.