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
An individual may carry on a business on his or her own behalf as a sole trader. A sole trader is personally liable for all obligations incurred in the course of the business. You must register your details on the Australian Business Register and obtain an Australian Business Number (ABN).
Partnership
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.
A partnership is not a separate legal entity. The partners share profits and are jointly and separately 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 governed by Australian State laws, common law and contract law.
Joint venture
Two or more individuals or corporations may also carry on a business as a joint venture. A joint venture is often formed for a particular project or product, or where the contributions of the venturers are different in type, amount or timing. Joint ventures may be incorporated (as a separate legal entity) or unincorporated. 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 and contract law.
Trust
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. Two most common types are Discretionary Trust and Unit Trust used by Small Business in Australia.
Australian company
A business may be conducted through an Australian company. An Australian company will be either a proprietary company or a public company. A public company may also be listed on the Australian Stock Exchange. A proprietary company is limited to 50 non-employee shareholders and cannot engage in public 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 members and no general minimum capital requirements for an Australian company.
A company is managed by the directors of the company, but is owned by its members. A company is a separate legal entity and is liable for its own obligations. The liability of the members will generally be limited to the unpaid amount on any shares held or a specified amount. A company’s directors and its holding company can be personally liable for company obligations incurred at a time when the company is insolvent or there are reasonable grounds for suspecting it is insolvent or would become insolvent by incurring a particular obligation. Australian companies are governed by the Corporations Act 2001 (Cth), 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 in Australia as a branch, the foreign company must register as a foreign company with ASIC. A foreign company does not carry on business in Australia merely because it 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 with ASIC an application form, together with a certified copy of the company’s certificate of registration and constituent documents. 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 foreign company can establish a new Australian subsidiary by registering the company, or more commonly, acquiring an existing “shelf” company (a recently registered company which has not traded).
Business names
A business name is a name or title under which a person or entity conducts a business. To register a business name, you will need to have: a) an Australian Business Number (ABN), or b) be in the process of applying for one with the Australian Business Register (ABR).Registering a business name does not protect you against third party claims for trade mark infringement.
