A foreign company or an investor proposing to incorporate a business in Australia may choose from a number of different entities or forms of business organisation. Each of these forms has its advantages and disadvantages. Business owners will need to carefully consider them and take advice to determine which is the most appropriate form for their business.
The major forms of business organisation are:-
1- Company
a- Locally Incorporated Subsidiary of a Foreign Company
b- Branch Office of a Foreign Company
c- Incorporation Transferred from Country of Origin
2- Joint Venture
a- Unincorporated Joint Venture
b- Incorporated Joint Venture
3- Partnership
a- Australian states (not territories) also recognise limited liability partnerships.
4- Trust
a- Discretionary Trust
b- Unit Trust
c- Hybrid Trust
1. COMPANY
A foreign company seeking to establish a business in Australia may choose among three main forms of corporate organisation.
Usually a “small proprietary company” is exempt from lodging accounts with ASIC. However, if the company is controlled by a foreign company and its financial results are not consolidated into financial statements that another company or a registered foreign company has lodged with ASIC, it will be required to lodge accounts with ASIC.
There is no minimum capitalisation requirement imposed by Australian company laws on an Australian company, although, in certain circumstances, various taxation acts may impose capitalisation requirements. Nonetheless, in Australia, a company with paid-up capital of $1 is not uncommon.
b. Branch Office of a Foreign Company:-A branch office is simply a local Australian office of the foreign company and does not have a separate legal identity from its parent. If the foreign company “carries on business in Australia”, it is required to be registered with ASIC and must comply with all relevant Australian laws. Failure to register a foreign company carrying on business in Australia is a strict liability offence and could result in fines.
The branch office will be taxed in Australia on all its incomeand profits that arise from its business activities conductedin Australia, although the provisions of applicable DoubleTaxation Agreements between Australia and the foreignparent’s country of incorporation may reduce the tax otherwisepayable in Australia.
The branch office must file an annual report and accounts. Ifthe accounts are not in English then a translation must befiled.As a branch office is not a legal entity separate from theforeign company, the foreign company will be liable for thedebts and other obligations of the branch office. This is becauseall transactions will be entered into by the foreign company.
c. Some advantages of having a local subsidiary or branch office compared with appointing an agent include:-
• Direct control over the business in Australia
• Potential cost reductions achieved by operating locally
• Identification with local business partners and customers
• Opportunities to establish or build a local corporate identity
• Access to other markets from a base in Australia
Australian company law is governed under the Corporations Act 2001.
2. JOINT VENTURE
Forming a joint venture with an Australian organization is a popular form of business organization for foreign companies and investors. A joint venture is a business organization where two or more people or entities become involved in a specific project or jointly participate in the conduct of a business operation.