Introduction
Foreign companies who intend to carry on business in Australia must register as a foreign company with the Australian Securities and Investments Commission (ASIC). The key issue to determine is whether a foreign company carries on a business in Australia.
Are you carrying on business in Australia?
A foreign company that has a place of business in Australia is deemed to carry on a business in Australia. This includes circumstances where the foreign company establishes or uses a share transfer office or share registration office in Australia. It also includes, subject to specific exemptions, circumstances where the foreign company administers, manages or otherwise deals with property situated in Australia as agent, legal personal representatives or trustee.
The Corporations Act 2001 provides that a foreign company will not be considered to carry on business merely because it:
- is a party to court proceedings or a claim or a dispute in Australia; or
- holds directors or shareholders’ meetings or carries on other activities concerning its internal affairs in Australia; or
- maintains a bank account; or
- effects a sale through an independent contractor; or
- solicits or procures an order that becomes a binding contract only if the order is accepted outside Australia; or
- creates evidence of a debt or creates a charge on property; or
- secures or collects debts or enforces its rights regarding any securities relating to such a debts; or
- conducts an isolated transaction (the transaction must be completed within 31 days and must not be one of a number of similar transactions); or
- invests funds or holds any property.
The Australian courts have also considered the meaning of ‘carrying on business’. Generally, a company will be taken to be carrying on business in Australia if its activities are conducted with sufficient system, repetition and continuity. These activities may be carried on as part of or in conjunction with another business and do not necessarily need to be for profit. However, system, repetition and continuity are not essential; a one-off transaction, if substantial, could also be seen by the courts as carrying on a business in Australia.
The courts have determined that if a foreign company establishes a fixed place of business and carries on business from that place using an agent or agents, with authority to bind the foreign company, then the company will be taken to be carrying on business.
The courts will also take into account various other factors such as whether the activities are:
- regular and repetitive
- carried out in a similar manner to businesses in its industry and of the same kind
- planned, organised and carried on in a business-like manner
- more permanent than temporary; and
- carried out in a commercial manner and would therefore not be better described as hobbies.
These factors should not be considered in isolation as the courts will review all the information and the circumstances surrounding the foreign company’s operations to determine whether the foreign company is ‘carrying on business’ in Australia.
What must a foreign company do to register in Australia?
To register a foreign company with ASIC, such a company must file appropriate documentation with ASIC, appoint a local agent and maintain a registered office and in certain instances a register of local members in Australia. Once the foreign company has been registered with ASIC, it must comply with various obligations such as reporting its financial results to ASIC.
Failure to register a foreign company in Australia is a strict liability offence and could result in fines by ASIC and the courts.
Are there alternatives to registration that a foreign company could consider?
The foreign company may choose to incorporate a local Australian subsidiary that will carry on business in Australia instead of the foreign company.
To incorporate an Australian subsidiary company (which will generally be a proprietary limited company), such a new company must have both an Australian registered office address and principal place of business (if it is not the address of the proposed registered office address), at least one shareholder (who will likely be the foreign company) and one Australian resident director. Once the Australian subsidiary company has been incorporated with ASIC it must also comply with various obligations such as carrying out an annual review, notifying ASIC of company changes and in certain instances reporting its financial results to ASIC.
If the foreign company chooses this route, there will likely be a number of other issues it will need to consider including contracts between it and the local subsidiary and employment arrangements for staff who will be on the ground in Australia.
The foreign company will also need to consider direct and indirect tax consequences of doing business in Australia regardless of which route is taken.
For more information about the registration of an Australian Company see: Register a company in Australia or contact us.
1 Comment for this entry
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I am thinking of doing business in Australia. The business will be an online company. What are the procedures? And what is the cost to register and set up the business in Australia?
Arlene
July 13th, 2013 on 6:38 am