International businesses that wish to set up in Australia will need to be mindful of three key things: structuring their business, employee management, and taxation requirements. There will also be additional rules specific to each industry, depending on which industry the international business is involved in.
Structuring the business
An international business can create a company in Australia by setting up a new entity. They could create the new entity in the following business structures:
- sole trader,
- joint venture,
- partnership, or
- Trading trust.
Each of the different ways of structuring a business will affect the company’s legal and taxation obligations.
The simplest business structure would be a sole trader. It is comparatively easy to establish and has less reporting requirements. A sole trader would have full control of the business and assets. However, they would have unlimited liability which makes their personal assets accessible by creditors. The sole trader also pays tax for all incomes generated on a personal level.
When two or more individuals or companies come together for the purpose of working on a project instead of conducting ongoing business, they enter into a joint venture agreement. Common projects include launching a new product, expanding the target market and developing existing areas of trade.
The two members of the joint venture share the responsibility of managing the costs, profits and any losses relevant to the project. The joint venture does, however, exist as a separate legal entity from the members individually.
A partnership is a business structure that involves two or more people sharing the profits and losses of a business by formal agreement.
The main types of partnerships include:
- General partnership – consists of partners who agree to share all financial and legal liability of a business that is jointly owned.
- Limited partnership – involves general partners who’s liabilities are limited by the amount of money they have invested in the business. Limited partners tend to be investors who don’t participate in the daily management of the business
- Incorporated limited partnership – allows partners in this partnership to be liable for a limited amount of debt incurred by the business. The incorporated limited partnership must also have general partners that have unlimited liability. The general partners can be personally liable when the business falls short of its obligations.
A trading trust is a legal device that holds goodwill and assets for its beneficiaries. Normally, the trustee is the company that is under an obligation to trade in the interest of the beneficiaries. Income is distributed to the beneficiaries instead of shareholders, while the trustee is responsible for paying the employees of the trust.
Registering a foreign company with ASIC
Alternatively, the international business could register their foreign company with the Australian Securities and Investments Commission (ASIC).
ASIC sets out the guidelines for registering a foreign company in Australia. Foreign companies registered in Australia are required to have an agent in Australia as well as a registered office in Australia.
Additionally, there needs to be at least one director who is ordinarily resident in Australia for a private company and two directors ordinarily residents in Australia for a public company. The meaning of “ordinarily resident of Australia” can be understood in the context of when the phrase is being used by the Australian Taxation Office (ATO).
The share structure must be determined carefully. It is best to also enter a shareholders agreement to ensure that each shareholder’s responsibilities and powers are clearly stated in writing to begin with. It is also important to ensure that the intellectual property of the business is protected by a suitable corporate structure of the business. Registering a trade mark at first instance can serve to protect important intellectual property. Generally, priority is given to trade marks that are registered earlier
As set out in the Fair Work Act 2009 (Cth) (the Act), the scope of the legislation extends to constitutional corporations which are defined in s51(xx) of the Australian Constitution as ‘Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth’. This means that both foreign companies and Australian incorporated companies are governed by the Act.
The court has held that the circumstance must show that there is a strong enough link between the employee’s manner of employment and Australia for the Act to come into play. Where there is a substantial connection, Australian employment law can become relevant to the business whether foreign or australian.
The ATO requires companies to obtain a tax file number (TFN). Companies also have an obligation to report to the ATO. Taxation obligations can be complicated by the involvement of overseas businesses in trades occurring in Australia. Businesses must also be in compliance with the Competition and Consumer Act 2010 (Cth). The statute has rules against non-competitive contracting, unfair and unreasonable contracts and misleading or deceptive conduct. Additionally, there are requirements in place relating to product warranties and liabilities.