As a foreigner, you can use a variety of business structures to conduct business in Australia. These include a trading trust, company, joint venture, sole trader or partnership. Each business structure has its own tax implications, legal characteristics and obligations. As a result any foreign business owner who wants to create a business structure in Australia to conduct business has to carefully consider carefully the kind of structure that is appropriate needs and objectives. Below is a brief description of these business structures and some of the approvals one may have to obtain.
1. Australian companies
Companies are an attractive option for most foreigners wishing to conduct business in Australia due to the fact that they offer limited liability for their shareholders. The main regulator of companies in Australia is the ASIC (Australian Securities and Investments Commission). Although there’re a number of different kinds of Australian companies, the most common is a company that is limited by shares.
A company limited by shares can be either a public company or a proprietary company. A public company can have a limitless number of shareholders. Additionally, a public company must also have at least 3 directors (at least 2 of whom have to be ordinarily resident in Australia) and at least 1 company secretary who’s ordinarily resident in Australia. A proprietary company is supposed to have no more than fifty non-employee shareholders, and at least 1 director who’s ordinarily resident in Australia.
Both public and proprietary companies should have a registered office and at least 1 shareholder in Australia.
Generally, there aren’t any specific limits on the scope of the company’s business or minimum capital requirements for starting a company in Australia. Nevertheless, some industries, like as banking, have specific licensing requirements.
Establishing a new Australian subsidiary
This involves paying the prescribed registration fee and filling and submitting to the Australian Securities and Investments Commission the required application form. A foreign business owner could also buy a shelf company (a company which has been registered but has not yet traded) from businesses that sets up business in Australia for foreigners.
2. Sole trader
An individual can conduct business in Australia as a sole trader. A sole trader is personally liable for all debts and obligations incurred by the business. If a sole trader wants to conduct business in a name other than his or her own, that person will need to register the business name.
3. Joint venture
Foreigners who want to start a business in Australia can also enter joint ventures with suitable Australian entities. Joint ventures are normally used for specific ventures or projects and can either be incorporated or unincorporated.
Foreign business owners can also form partnerships with Australian entities. . Partnerships are created by way of conduct or agreements and the companies or individuals carrying on the business in common as partners with an aim of making a profit. They’re governed by the State and Territory legislation, instead of Federal law, and normally consist of 2-20 companies or individuals, subject to some exceptions.
Partnerships aren’t separate legal entities. Just like sole traders, the partners are personally liable for all the obligations and debts incurred by their business but on a joint and several liability basis. In some Australian States, it’s possible to create a limited liability partnership so that some of the partners can have limited liability.
5. Trading trust
Foreign business owners can also conduct their business in Australia through a trust. There’re several trust arrangements that are recognised in Australia and the most common are unit, fixed and discretionary trusts. The particular terms and kind of trust will determine the kind arrangements used to distribute income to the beneficiaries.
Trusts can provide tax benefits over traditional corporations and are normally used for buying real estate.
Registering as a foreign company
It’s possible for a foreign company to conduct its business in Australia without having to use an Australian business structure. The foreign company will have to register as a foreign company that is operating in Australia by filling submitting to the Australian Securities and Investments Commission the required registration forms. Additionally, foreign companies that are registered in Australia have to appoint an agent in Australia to make sure that the company complies with Australian law and have a registered office in Australia.
Buying A business In Australia
Foreign business owners can also purchase assets or shares the relevant company that conducts the business they are interested in.
Asset vs. share purchases
Asset purchases are commonly documented by a sale-agreement between the seller and the buyer, which will record the assets being sold and the price being paid. The assets which are normally transferred include intellectual property, business premises, employees, equipment and contracts. In an asset purchase, the buyer doesn’t acquire the business vehicle and, as such, normally only assumes the liabilities which it contractually assumes. As a result the buyer has to obtain third party consent to the transfer of the relevant contracts to the buyer. Additionally, it’s unlikely that the government licences that are held by the seller will be transferable to the buyer, and the buyer might have to apply for new licences.
Acquiring a business through buying of shares in a suitable company results in the buyer acquiring all the company’s liabilities. To mitigate this risk, the buyer can obtain indemnities and warranties from the seller.
In contrast to a purchase of assets, purchasing the shares in a company results in the purchaser acquiring the business vehicle, this means that all the company’s contracts will be automatically acquired and there might not have to get a third party consent.
There are disadvantages and advantages that are associated with both share and asset purchases so it’s important that you discuss with your commercial and legal advisers which method is most suitable for your company’s objectives.
Relevant legislation when buying a company in Australia
The primary piece of legislation governing foreign investment in Australia is the Foreign Acquisitions and Takeovers Act-1975 ( Cth) and its accompanying regulations (together, they are known as FATA) .
Apart from FATA, foreigners who want to buy an Australian business should also be aware of the following:
Section fifty of the Competition and Consumer Act, 2010( Cth) prohibits the acquisition of shares or assets that would have the effect, or may likely have the effect, of significantly reducing competition in a market for services or goods in Australia.
Certain industries, like banking, civil aviation, shipping, media, airports and telecommunications, have additional industry- specific rules that regulate ownership.
Important questions to ask when buying a business in Australia
- How was the buying price of the business determined?
- Is the valuation based on an independent appraisal or internal calculations?
- Is the buying price negotiable?
- What’s the goodwill value of the business?
- How is the sale structured is this a stock sale, asset sale, or a sale of partnership or membership interests?
- What is the cash flow and profit (net and gross) for the business?
- Who are the key customers, suppliers, staff?
- What are the length and terms of any leases?
There are many things to consider when buying or starting a business in Australia as a foreigner. As such, you should get a local expert such as Femia Accountants to help with your business purchase or setup. Contact us today on 9316 4500 or book a time to meet with us.