BUSINESS STRUCTURES
A person may carry on business in Australia as a
sole trader, a partnership, a joint venture, a trust
or a company.
Sole trader / Sole
proprietorship
An individual may carry on a business on his or
her own behalf as a sole trader, also commonly
called a sole proprietorship. A sole trader is
relatively simple to establish; there is no separate
legal entity other than the individual. A sole trader
is therefore personally liable for all obligations
incurred in the course of the business and income
from the business is taxed at the personal rate
of the sole trader.
Unlike other business structures, there is no
specific legislation regulating sole traders however
they may be liable to comply with other legislation
specific to their business.
Partnership
Joint venture
Trust
Two or more individuals or companies may
carry on a business as a partnership. Partnerships
(other than certain professional partnerships)
are limited in size to 20 partners.
Two or more individuals or companies may also
carry on a business as a joint venture. A joint
venture describes the relationship between multiple
parties entering into an agreement to work towards
the same strategic goals while remaining separate
entities. A joint venture differs from a partnership
in that it is often formed for a particular project or
business goal, or where the contributions of the
venturers are different in type, amount or timing.
Joint ventures usually have a defined end.
A business may be carried on by a trust.
The trustee owns the trust property and carries on
the business on behalf of the beneficiaries of the
trust. The trustee will be liable for the obligations
of the trust, but will typically have rights of
recourse against the trust property in respect of
those obligations. The rights of beneficiaries will
depend upon the terms of trust. The beneficiaries’
entitlements may be in a fixed proportion or
variable at the discretion of the trustee. Trusts are
governed by common law and contract law.
Most partnerships are established by a partnership
agreement, which defines the rights and
obligations of the partners between themselves,
subject to applicable legislation. A partnership is
not a separate legal entity and, as such, the assets
of the partnership are owned by the partners jointly
or in such proportions as set out in the partnership
agreement.
Partners share profits and are jointly and
separately severally liable for the obligations of the
partnership. However, in some Australian States, a
limited partnership may be established under which
some (but not all) partners have liability limited to
the extent of their capital contribution. However,
limited liability partners must take no part in the
management of the partnership.
Partnerships are largely governed by Australian
State laws, common law and contract law.
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Joint ventures may be incorporated (as a separate
legal entity) or unincorporated (a purely contractual
arrangement). The rights and liabilities of the
respective venturers will depend upon the terms of
the joint venture. Joint ventures are governed by
the common law, contract law and, in the case of
incorporated joint ventures, the Corporations Act.
A person may carry on business in
Australia as a sole trader, a partnership,
a joint venture, a trust or a company.
Australian company
A business may be conducted through an
Australian company. A company is a separate legal
entity capable of holding assets in its own name
and is liable for its own obligations. The two main
types of company in Australia are proprietary and
public companies. A public company may also be
listed on the Australian Securities Exchange. A
proprietary company is limited to 50 non-employee
shareholders and cannot engage in fundraising
activities in Australia. A proprietary company can,
however, be simpler and cheaper to administer
from an Australian regulatory point of view.
An Australian company must have a registered
office within Australia, have Australian resident
directors (two for public companies, one for
proprietary companies) and an Australian resident
company secretary (optional for proprietary
companies).
There are no residency restrictions on
shareholders and no general minimum capital
requirements for an Australian company.
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A company is managed by its directors, but owned
by its shareholders (also commonly referred to
as members). Shareholders make a number of
decisions on special issues that affect the company
by passing ordinary resolutions or, if required by
the company’s constitution or the Corporations Act,
special resolutions. The liability of shareholders will
generally be limited to the unpaid amount on any
shares held.
Directors are the individuals responsible to
manage the company’s day-to-day business and
affairs. There are a number of common law and
statutory duties and obligations imposed on their
position, such as the duty to act with care and
diligence. These duties may continue even after
deregistration of the company. A director who fails
to perform these may be guilty of an offence.
The primary duty of directors is to act in the best
interests of the company. However, if the company
is insolvent, or there is a real risk of insolvency,
their duty expands to the company’s creditors.
In such circumstances, directors have a positive
duty to prevent the company trading and incurring
further debt. Contravening the insolvent trading
provisions of the Corporations Act can result in
both civil and criminal charges against a director.
Australian companies are governed by the
Corporations Act, their constituent documents
and common law.
Foreign company
A foreign company may carry on business in
Australia either as an Australian branch or through
an Australian subsidiary company. To carry on
business as an Australian branch, the foreign
company must register as a foreign company
with ASIC. Whether a foreign company carries on
business in Australia is defined by certain legal
principles. It is generally not sufficient that it merely
engages in certain activities in Australia such as
becoming a party to legal proceedings, holding
director or shareholder meetings, maintaining a
bank account, or holding any property.
A foreign company wishing to apply for registration
should reserve the company’s name to ensure
that it is available in Australia and must lodge an
application form with ASIC, together with a certified
copy of the company’s certificate of registration
and constituent documents. If any document is
not in English, the foreign company should also
provide a certified translation of that document.
The foreign company must also have a registered
office in Australia and appoint a local agent
to represent the company in Australia. Once
registered, the foreign company is required to
lodge copies of its financial statements and comply
with various notification obligations under the
Corporations Act.
A registered foreign company must notify ASIC
when company details change (such as a change
in officeholders or registered address). ASIC must
also be notified in circumstances where the foreign
company ceases to carry on business in Australia,
is wound up, dissolved or deregistered in its place
of origin.
A foreign company can establish an Australian
subsidiary by registering the new company
with ASIC.
Business names
ASIC is responsible for registering, renewing and
administering business names for all Australian
businesses. If a person carries on business in
an Australian State (other than under their own
individual or a company name), that person is
required to register the business name on
ASIC’s Business Name Register which is
accessible online.
GET IN TOUCH
Rory Moriarty
National Practice Group Leader
Corporate/M&A
T +61 2 9353 4764
[email protected]
Sydney
Level 15
1 Bligh Street
Sydney NSW 2000
+61 2 9353 4000
Melbourne
Level 18
333 Collins Street
Melbourne VIC 3000
+61 3 9286 6000
Brisbane
Level 28
Riparian Plaza
71 Eagle Street
Brisbane QLD 4000
+61 7 3292 7000
Perth
Level 27
QV.1 Building
250 St Georges Terrace
Perth WA 6000
+61 8 9426 8000
Canberra
Level 10
NewActon Nishi
2 Phillip Law Street
Canberra ACT 2601
+61 2 6279 4000
Darwin
17–19 Lindsay Street
Darwin NT 0800
+61 8 8943 2555
www.claytonutz.com
16 | Doing Business in Australia