G’Day mate! When considering all there is to admire about Australia, from the Great Barrier Reef to the Sydney Opera House, from Aboriginal art to Hugh Jackman, people usually overlook all of the benefits of doing business there. From its excellent proximity to countries in the Asia Pacific to the ease of starting a business, it’s a great place expand your reach. In fact, out of 190 economies, the World Bank has, for 2017, ranked Australia as the 7th best jurisdiction for starting a business.
Types of Businesses in Australia
There are various types of business structures in Australia -- namely, the sole trader, partnerships, trusts and companies. Each type of structure has different legal and tax consequences.
For the purpose of this article, we will focus on companies and, in particular, the most common type, which is the Proprietary Company (Pty Ltd). As in the U.S., a company is a separate legal entity, therefore having the same rights as a natural person and can incur debt, sue and be sued. It benefits from limited liability and corporate tax rates. However, unlike in the U.S., when you register a company in Australia, the company may conduct business anywhere in Australia without the need to register in each state and territory.
What Is a Proprietary Company?
A proprietary company is a private company (as opposed to a public company which sells its shares to the general public). A proprietary company:
- Must have no more than 50 non-employee shareholders.
- Must be either limited by shares or be an unlimited company that has share capital.
- Must not conduct any activity that requires disclosure to investors.
- May only offer shares to members of the company or employees/subsidiaries of the company.
Small Proprietary Companies vs. Large Proprietary Companies
The Corporation Act 2001, Section 45A, differentiates a small proprietary company, which has reduced financial reporting requirements, and a large proprietary company, which must prepare annual audited financial reports that are presented to its shareholders and filed with the Australian Securities and Investments Commission (ASIC).
A small proprietary company satisfies two of the following tests:
- The consolidated gross operating revenue is less than $25 million
- The value of the consolidated gross assets is less than $12.5 million.
- The company has fewer than 50 employees.
A large proprietary company satisfies two of the following tests:
- The consolidated gross operating revenue is $25 million or more
- The value of the consolidated gross assets is $12.5 million or more.
- The company has 50 employees or more.
Advantage of a Small Proprietary Company
A small proprietary company allows you to have the same person as a sole director and shareholder. In this instance there is no need for a formal set of rules governing the company’s internal relationships. Such companies do not have to adopt a constitution (although they may do so if they wish). If an additional director is appointed or an additional person becomes a member, the replaceable rules will automatically apply to the company, unless they are replaced by a constitution adopted by the company. Replaceable rules are in the Corporations Act and are a basic set of rules for managing your company. Using replaceable rules means your company does not need a written constitution. This means you don't have the expense of keeping it updated as the law changes.2
How to Register a Proprietary Company
In order to register a proprietary company, you must take the following steps1:
- Prior to submitting the application for registration, you should confirm the availability of the proposed company name. If no name is specified, the company will simply be referred to by its Australian Company Number (ACN).
- Complete and submit an ASIC Form 201 (Application for Registration as an Australian Company) and pay the prescribed fee.
- Ensure that any person to be appointed as a director or secretary of the company has consented in writing to that appointment. Similarly, each shareholder of the company must have consented to become a shareholder. At least 1 director (and, if the company has appointed secretaries, at least 1 secretary) must ordinarily reside in Australia. The registered office of the company must be an address in Australia.
- The company may adopt its own constitution or rely upon the Replaceable Rules in the Corporations Act 2001.
- Upon incorporation, ASIC will issue a Certificate of Incorporation, which evidences that the company has been incorporated on and from the date of issue.
How to Register a Foreign Company
If you wish to qualify your U.S. company to do business in Australia, you may apply as a foreign company. To do so:
- Check that the name you want is available. You are responsible to be aware of any similar names or trademarks that may affect your name.
- To register, complete and submit ASIC Form 402 (Application for Registration as a Foreign Company). You need to provide general information about the company and how it will be run.
- Include all supporting documents with your application (Certificate of Incorporation and certified charter documents)
- State that the name and address of the local agent is resident in Australia (whether an individual or company) and is authorized to accept service of process on behalf of the company on ASIC Forms 418 and 403 and submit to ASIC.
- If the list of directors on the application form includes directors who are residents in Australia, you need to file a memorandum that outlines their powers.
As you can see, starting a business in Australia, especially a small proprietary company, is fairly easy and straightforward. After you’ve met all of the requirements and filed the paperwork, you can enjoy some shrimp on the “barbie” and congratulate yourself on your excellent choice of jurisdiction for international expansion!
 CORPORATIONS ACT 2001 - SECT 45A(1)
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.