Australia: Eight key points to keep in mind when setting up a new entity in Australia

Last Updated: 19 May 2017
Article by Carl Hinze and Linda Lau
Most Read Contributor in Australia, December 2017

The process of setting up an Australian subsidiary or a new entity in Australia can be stressful and confusing for many foreign investors. To help with this process, we have listed below eight key points to consider when establishing a new entity in Australia.

  1. Company registration
  2. Foreign companies may conduct business in Australia through an Australian branch (by registering the foreign company through the Australian Securities Investment Commission (ASIC)) or subsidiary (by registering a new company through ASIC). The procedure to register an Australian branch of a foreign company is slightly more onerous than setting up a new subsidiary company in Australia, and in practice most foreign companies elect to establish a new company in Australia as a subsidiary. This article focuses at a high level on the key considerations facing Australian subsidiaries of foreign companies.

    The procedure for setting up a limited liability company, either a proprietary or non-listed public company, is straight forward, with the relevant forms required to be lodged with the ASIC.

    Australian companies must have a registered office to receive ASIC correspondence and to liaise with ASIC. Also, there needs to be (at least) one director and a secretary who ordinarily resides in Australia (a secretary is mandatory for a public company and usual, but not compulsory, for a proprietary company).

  1. Directors' compliance and corporate governance
  2. The Corporations Act 2001 (Cth) (Corporations Act) imposes duties and obligations on company officers (commonly company directors and secretaries) in relation to honesty, reasonable care and diligence and proper use of information and position.

    The Corporations Act requires a director to actively participate in the company's affairs and take positive steps to ensure he or she is adequately informed about the financial affairs of the company. In respect of the latter, directors must ensure that the company does not trade when insolvent (i.e., when the company is not able to pay its debt as they become due).

    Serious consequences may flow to officers for breach of these duties, including legal proceedings being taken against a director to recover compensation for losses resulting from insolvent trading, bans from holding a company office for a specified period or indefinitely, fines and, in extreme cases, imprisonment. As such, foreign investors need to ensure that officers are aware of their legal obligations, and that a compliance program and appropriate training are available to its Australian entitys' officers so they are able to uphold their legal duties.

  1. Accounting and financial management
  2. A company (and its officers) is required to keep accounting records that correctly record and explain the transactions and the financial position of the company. Such accounting records are to enable the preparation of 'true and fair' financial statements and (where required) an audit of such requirements.

    For reporting entities (which includes all public companies), 'large proprietary companies' and 'foreign controlled small proprietary companies', the financial statements are to be prepared in accordance with the provisions of the Corporations Act, Australian Accounting Standards and the 'interpretations' issued by the Australian Accounting Standards Board from time to time. A directors' compliance program should be implemented to ensure that this matter is adequately addressed.

  1. Preparation of employment agreement templates
  2. In Australia, both federal and state laws govern nearly all aspects of the employment relationship, including the standard terms and conditions of employment, leave and holidays, tax and superannuation, discrimination and workplace health and safety. It is also important to consider the application of Modern Awards - which are industry and occupation based – on the employment relationship in Australia.

    For foreign companies who have a subsidiary which is registered in, or employs people in Australia, it is worth considering to prepare a template employment agreement for general employees as well as senior managers. Contracted conditions are subject to the minimum employment standards provided under the National Employment Standards, awards and enterprise agreements. Subject to each individual's circumstances, the template employment agreement can then be varied to address the additional terms and conditions including (but not limited to) bonuses, salary sacrificing arrangements and post-employment restraints.

  1. Sponsoring overseas workers for temporary and permanent residency visas
  2. It is common for a foreign controlled subsidiary in Australia to sponsor its foreign workers for temporary and permanent residency visas in Australia, especially for personnel at the executive, managerial, professional, and technical and trade levels.

    From March 2018, the Temporary Work (Skilled) visa (subclass 457) will be abolished and replaced with the new Temporary Skills Shortage visa. The visa will be comprised of a Short-Term stream of up to two years, which can be renewed only once. There is also no permanent residence pathway from this visa. It will be important for foreign companies with subsidiaries in Australia to understand the implications of immigration laws in Australia on their Australian business plans.

  1. Leasing a commercial property
  2. When a foreign company initially establishes a presence in Australia, it may be preferable to enter into a lease of a commercial property as an alternative to buying land. A lease confers a right of exclusive possession of the land for a fixed period of time. Depending on the character of the premises being leased (retail or non-retail), it may be governed by different legislation. It is advisable for foreign companies to engage professional legal assistance in reviewing and advising on the lease in question at an early stage.

  1. Protecting intellectual property
  2. The principal forms of intellectual property protection available in Australia are copyright, patents, design and trademarks, all of which are governed by legislation. The common law also provides remedies against a person passing off goods or services as those of another, as well as protection for confidential information and trade secrets. We recommend foreign investors appropriately register their intellectual property (if applicable) as soon as they decide to carry out their businesses in Australia.

  1. Preparing standard commercial contracts or terms of trade
  2. A contract is a legally enforceable agreement or promise. In Australia, a contract will only be enforceable where it satisfies the relevant requirements including offer, acceptance, consideration, intention to create legal relations and certainty. While a contract is generally regulated by the common law, there is also legislation to remedy unfair and unconscionable contracts. As such, foreign investors (and their Australian entities) are encouraged to prepare standard commercial contracts and terms of trade appropriate for the Australian market and to receive advice on corresponding Australian law-related issues. Foreign companies should be aware that Australian law provides for statutory warranties which apply to certain goods and services. These implied warranties cannot be contracted out of, or refused, changed or limited by a retailer or supplier, and liability for breach of statutory warranties cannot be excluded and may only be limited to the extent permitted by applicable law.

This high-level note is not an exhaustive list of all of the key matters which foreign companies need to consider when establishing a presence in Australia. For instance, it does not consider important issues such as foreign investment applications under Australia's foreign investment review regime. It also does not consider anti-trust and competition regulation or anti-bribery and corruption matters. This note is intended to provide a basic introductory guide to key issues which foreign investors often overlook when deciding to establish a legal presence in Australia.

Holding Redlich's China practice is delighted to assist foreign investors to set up and do business successfully and safely in Australia. Please do not hesitate to contact us if you have any questions or need assistance in relation to any of the above matters.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Carl Hinze
Linda Lau
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