How to set up a company in Australia

The two most common structures for a foreign company to carry on business in Australia are through an Australian incorporated subsidiary or a branch of the foreign company itself.

The decision whether to establish a subsidiary or branch in Australia will largely be driven by commercial, legal, and tax considerations.

In our experience, depending on the scope of the business activities, it is more common for foreign companies to set up a separate Australian subsidiary. Factors that support this decision include:

• the ease and comfort for customers dealing with a separately identifiable Australian entity;
• the protection from liability afforded to the parent company if an Australian subsidiary is incorporated; and
• reducing the issues and disputes with revenue authorities that may arise in relation to determining the extent to which profits from carrying on business in Australia will give rise to tax in Australia.

There are different types of companies that can be incorporated in Australia. It is generally recommended that a proprietary company limited by shares be used – (i.e. the liability of shareholders is limited to the amount paid for shares, plus any amount unpaid on shares (if any)).

A proprietary company limited by shares must have at least one shareholder and no more than 50 shareholders. There is no requirement to have an Australian resident shareholder.

The share capital be whatever the shareholders determine as the subscription price per share. For example, the founding shareholder may subscribe for 100 ordinary shares at $0.01 each, giving the company a share capital of $1.

There are no restrictions on a foreign company incorporating a subsidiary in Australia. However, Australia’s foreign investment laws may ‘restrict’ the business conducted by the subsidiary, or the assets that may be acquired by the subsidiary, by requiring the foreign company to give notice or obtain the approval of Australia’s Foreign Investment Review Board (FIRB).

The business of the company will be managed by its directors in accordance with the company’s constitution or the replaceable rules outlined in the Corporations Act 2001 (Cth) (if the company has no constitution).

If the company has a constitution, it may contain an express restriction on, or a prohibition of, the company's exercise of any of its powers. However, the exercise of a power by the company is not invalid merely because it is contrary to an express restriction or prohibition in the company's constitution.

If the company has a constitution, it may set out the company's objects. An act of the company is not invalid merely because it is contrary to or beyond any objects in the company's constitution.

Company conduct (including the conduct of directors and senior executives) is well regulated in Australia. Key areas of law that a foreign company should be aware of include:

• Director duties
• Consumer and Competition laws
• Workplace health and safety laws
• Foreign investment laws
• Federal Taxes (income tax, goods and services tax, fringe benefits tax) and State Taxes (transfer duty, payroll tax)
• Employment law

The company will have ongoing compliance and reporting obligations. The level of compliance and reporting obligations will depend on the size of the business and the industry within which it operates. For example, the company will need to lodge an annual statement with the Australian Securities and Investments Commission (ASIC), pay an annual registration fee, and subject to the size of the business lodge financial accounts. The company will also have ongoing reporting obligations to the Australia Taxation Office (ATO) which again will depend on the size of the business. If the company’s business operations are likely to impact the environment, then the company may need to obtain certain licences and report on activities to certain regulatory bodies.

A proprietary company must have at least one shareholder and not more than 50 shareholders. Any person/entity that will subscribe for shares in the company will need to consent to being a shareholder – this is generally done through a share subscription agreement.

A proprietary company must have at least one company director that ordinarily resides in Australia. Each director must give the company their written consent to being appointed a director of the company.

A proprietary company is not required to have a company secretary. If a proprietary company elects to have a company secretary (a company can have more than one company secretary), at least one person that consents to being a company secretary must be a resident of Australia.

A company can be incorporated by lodging an application with ASIC and paying the requisite fees. There are a number of online platforms available that can assist with the incorporation of a company online in a short period of time.

The application will require the following details:

• the company’s proposed name;
• the name and address of each person who consents to be a shareholder;
• the name and address of each person who consents to be a director;
• the name and address of each person who consents to be a company secretary;
• the address of the company’s proposed registered office;
• the address of the company’s proposed principal place of business (if it is not the address of the proposed registered office);
• the number and class of shares each shareholder will hold;
• the amount (if any) each shareholder agrees to pay for each share;
• whether the shares each shareholder agrees in writing to take up will be fully paid on registration; and
• the state or territory of registration.

If the application is accepted by ASIC, ASIC will register the company, give the company an Australian Company Number (ACN), and issue a certificate of incorporation.

Once the company has been incorporated, the company will also need to obtain a tax file number for dealing with the ATO in relation to income tax matters. The company will also need to obtain an Australian Business Number (ABN) for issuing invoices to customers and dealing with the ATO in relation to the company’s GST reporting obligations.

There are a number of challenges that foreign companies can face when setting up a subsidiary in Australia. These challenges include but are not limited to:

• engaging with an Australian resident to act as a director of the subsidiary – this can be particularly difficult if the company will not have permanent employees based in Australia that are willing to consent to acting as a director;
• understanding and complying with Australian employment laws which can be viewed as being more employee friendly as compared to other jurisdictions;
• understanding and complying with Australian competition laws which can be viewed as being stricter than comparable laws in other jurisdictions;
• complying with FIRB rules if the company intends to acquire an interest in land or expand through acquisition of a local business;
• understanding and complying with Australian property rules and regulations if the company wishes to purchase, lease or develop commercial property;
• understanding and complying with Australian consumer laws which can be viewed as stricter than comparable laws in other jurisdictions; and
• the company may need to register a trade mark and/or domain name in Australia to protect the rights and name.

Challenges can be easily navigated with the assistance of local legal counsel and an accountant that has experience in dealing with foreign companies with operations in Australia.