Exploring business entities in Australia

Setting up a company in Australia can be a challenging endeavour, particularly when it comes to understanding local regulations and selecting the right business structure. For foreign businesses looking to establish a presence in Australia, it is essential to explore the various types of legal business entities and understand the benefits and requirements of each to make informed decisions.

By Ro Elvinia

The Corporations Act 2001 (Cth) is a key law for doing business in Australia. It governs the formation, operation and dissolution of companies, as well as the responsibilities of company officers, auditors, shareholders and other stakeholders. The Act is designed to promote transparency, accountability and integrity within the Australian market, establishing companies as legal entities capable of performing all the functions of a corporate body. This includes the ability to sue and be sued, enjoy perpetual succession and acquire, hold and sell property.

In this article, we address how to choose a business structure by exploring the types of business entities available in Australia. We highlight their key features for a business structure comparison to help you evaluate your options as you navigate your market entry and start a company in Australia.

Proprietary companies (Pty Ltd)
Proprietary companies are the most common business structure in Australia for foreign businesses entering the country. They are suitable for private ventures or subsidiaries of public companies, offering limited liability that protects members by limiting their financial risk. With no minimum capital requirement, they provide an easy and flexible option for businesses of all sizes.

A proprietary company can have up to 50 non-employee shareholders and is limited by shares, which means that members are only responsible for any unpaid amounts on their shares. This protects their personal assets if the company is closed. It cannot offer shares to the public, except to existing shareholders or employees.

There are two types of proprietary companies: large and small. A proprietary company is considered large if it meets at least two of the following criteria:

• Consolidated gross assets of AUD25 million or more at the end of the financial year.
• Consolidated revenue of AUD50 million or more in a financial year.
• 100 or more employees at the end of the financial year.

Large proprietary companies must prepare and submit audited financial reports and director’s reports each year, unless they receive an exemption from ASIC.

In addition to these requirements, it is important to note that, according to the Corporations Act 2001, all companies registered in Australia must have a resident director and a registered office address in Australia. Furthermore, all directors must verify their identity with the Australian Business Registry Service and obtain a Director Identification Number (DIN).

Australian branch
Establishing an Australian branch can be the best choice for businesses that want to operate directly without creating a subsidiary. This branch acts as an extension of a foreign company registered outside Australia. Under the Corporations Act, foreign companies must register as a foreign entity with the Australian Securities and Investments Commission (ASIC) – Australia's corporate, markets and financial services regulator – to open a branch in Australia, allowing them to conduct business in the country. This registration creates a public record of the company's presence, which can help improve brand visibility and credibility in the local market. Once registered, the branch receives an Australian Registered Body Number (ARBN). Unlike a subsidiary, a branch is not a separate legal entity, meaning the parent company is fully responsible for its liabilities.

While an Australian branch does not need a local director, it must appoint an Australian resident as a local agent to ensure compliance with ASIC and the Corporations Act. The branch must also have a public officer who lives in Australia.

In addition, financial statements must be audited according to the laws of the parent company's country. If an audit is not required in the home country, ASIC may still ask for one if the submitted reports are insufficient. The Australian branch must also submit annual returns to ASIC, which include a balance sheet, cash flow statement, profit and loss statement and any other documents required by the parent company’s home country. For foreign companies from countries with a Double Tax Treaty with Australia, only income generated through the branch in Australia is subject to tax.

Public companies (Ltd)
Public companies limited by shares are ideal for larger businesses targeting significant growth. Unlike proprietary companies, they can have unlimited shareholders, enabling them to raise substantial capital. In Australia, the four main types of public companies are: those limited by shares, limited by guarantee, unlimited and no liability companies.

Australian regulations require public companies to have at least three directors, with two residing in Australia, as well as one company secretary and a public office accessible during specific hours. The Australian Securities and Investments Commission (ASIC) regulates public companies under the Corporations Act 2001, ensuring compliance and investor protection. The Australian Prudential Regulation Authority (APRA) also oversees companies in the financial sector, focusing on stability and protecting depositors and policyholders. 

In addition, public companies may be listed on the Australian Securities Exchange (ASX), enhancing visibility and access to capital. They must provide detailed and frequent updates on significant events and financial performance to keep investors informed.

Lastly, they are obligated to prepare independently audited annual financial reports and directors’ reports. Public companies must also hold annual general meetings where shareholders discuss performance, elect directors and approve financial statements.

ASX listing
Listing on the ASX helps companies raise capital, attract investors and increase shareholder liquidity, enhancing visibility and credibility in the global market. To qualify, companies must show financial stability with either a minimum revenue of AUD1 million and a net profit of AUD500,000 in the past 12 months or a market capitalisation of AUD20 million. They must also have net assets of at least AUD4 million and a three-year operational track record.

A detailed prospectus outlining the company’s business and finances must be lodged with both ASIC and ASX. Companies must adhere to ASX Listing Rules, including having a majority-independent board and forming audit and risk committees to ensure governance and transparency. They must also disclose any material information affecting their stock price promptly.

Once listed, companies must comply with ongoing obligations, such as continuous disclosure and submitting annual and half-yearly financial reports while maintaining corporate governance practices as per ASX guidelines.

Representative office
A representative office is ideal for companies exploring business opportunities in Australia without engaging in direct commercial activities. It allows businesses to conduct marketing, gather market intelligence and research ventures in a low-risk environment, making it suitable for assessing market viability before a larger commitment.

To set up a representative office, companies must register with ASIC and may need an Australian Business Number (ABN). The office cannot conduct sales or generate revenue directly; its activities are limited to marketing and research.

A local representative, often an agent or employee, must staff the office to facilitate communication and navigate regulatory and cultural nuances. While no local director is required, a local representative ensures compliance.

Representative offices have specific reporting obligations, such as lodging annual returns with ASIC, but these are less stringent than those for full business entities. Companies must still comply with Australian laws, particularly on employment and taxation.

Overall, a representative office allows companies to explore the market and build relationships with minimal risk before making significant investments.

Why connect with ABN Australia?
ABN Australia is more than just a service provider—we are a trusted partner dedicated to your business success. Since our beginnings in 1976, we have built a legacy of trust, knowledge and innovation, making us the experts international companies turn to for navigating corporate compliance and accessing Australian corporate services. Whether you are exploring ABN registration services or other company registration services in Australia, or need assistance with DIN, resident director services, or a registered office address, we understand the landscape, regulations and opportunities. We combine this expertise with cutting-edge technology to deliver responsive, efficient and cost-effective solutions.

Our integrated approach ensures that we handle the complexities of Australian business registration, branch establishment or business setup in general so you can focus on building and growing your business. With ABN Australia, you have a partner who simplifies the process, provides local expertise and remains committed to your success.

Let’s get started
Are you ready to establish your business in Australia with a partner who truly knows the market? Contact ABN Australia today and experience the difference of working with a company that blends local expertise, efficiency and trust to deliver exceptional results for your business.

Published: 23^rd Oct 2024 | Last updated: 23^rd Oct 2024