Requirements for setting up an Australian subsidiary

WEIGHING THE PROS, CONS AND COMPLIANCE OBLIGATIONS OF FOREIGN REGISTRATION AND AUSTRALIAN COMPANY FORMATION

In Australia, foreign businesses can either register as a branch or establish a local subsidiary.

While branch registration is possible, many international businesses choose to set up a proprietary limited company to reduce compliance burdens, insulate risk, and gain flexibility—particularly when product approvals or litigation are involved.

 

VIDEO SCRIPT

I’m in Tubingen in Germany today. I’ve been visiting some clients in this area, and we popped over to Tubingen to have a look at the university where my daughter wants to study next year.

Registering a foreign company and carrying on business in Australia through a branch office is not difficult. However, the Australian reporting requirements for foreign companies are heavier than those for Australian companies, and you need to appoint an Australian agent to represent your business in Australia.

The heavier reporting requirements are one good argument for registering an Australian subsidiary if you’re going to be trading in Australia. Depending on your circumstances, other arguments might include the potential cost savings; you might find it cheaper to set up and operate an Australian company than to operate as a registered foreign business. Operating through an Australian subsidiary could insulate your overseas business from disputes, litigation and claims in Australia.

When it comes to product liability, however, Australia’s laws keep foreign manufacturers liable for consumer products sold in Australia regardless of your corporate structure.

There may be tax reasons in your jurisdiction why it’s better to operate through a branch office, and you should seek tax advice from a cross-border specialist when considering what Australian structure suits your business best.

Many international companies find that establishing an Australian subsidiary is the best option for them. Establishing an Australian subsidiary isn’t complicated. In fact, setting up and running an Australian business can be less onerous than operating a branch office as a registered foreign company.

The most common type of subsidiary is a proprietary company limited by shares, called a Pty limited company. This is the type of subsidiary that I’m talking about here. A public company or a limited liability company are less common options and a company can be limited by guarantee, an unlimited liability company with share capital, or a no liability company, which applies to mining only.

When you have an Australian subsidiary, the subsidiary can trade in Australia, sell your products directly or through a distributor.

Alternatively, the subsidiary might not trade but simply hold any relevant products’ sponsorships, introductions, registrations or approvals. Whether you sell directly or through your subsidiary or use a distributor, a properly set up subsidiary can be a buffer between your Australian operations and your interests in other countries.

This buffer can be especially useful in the event of litigation, where most liabilities remain with the subsidiary manufacturer’s product liability aside.

What are the requirements for an Australian subsidiary?

• Australian Pty Ltd companies must have at least one shareholder, but not more than 50 shareholders.
• A Pty limited company can be 100% owned by the foreign parent company.
• Australian subsidiaries need at least one director and must have at least one director who lives in Australia.

Your Australian resident director can be an employee lives in Australia or an independent person such as your lawyer or accountant.

If you choose an employee to be the director of your Australian company, you need a plan for the eventuality that your employee leaves you or you have a disagreement. As a director of your company, your employee has a lot of control and power over the subsidiary. Your employee could leverage that control in a dispute. These matters should be directly addressed in their employment contract, and you should set limits around the authority that they have.

When you set up your Australian operation on a firm foundation, you can make a confident entrance into an exciting market.

At Argyll Law, we have decades of experience helping companies outside Australia set up their businesses on exactly that firm foundation, and we continue that relationship by providing ongoing advice and support on the ground in Australia.

We also offer Australian Resident Director services for suitable companies. If you’re considering entering the Australian market and would like advice specific to your circumstances, please get in touch with me.