The expansion of a company into a new overseas market can be an overwhelming idea for any company, and many organisations find that they don't even know where to begin. When entering the Australian market or establishing a business in Australia, it is very important that foreign investors develop a precise plan and are aware of the most common hurdles and issues that they will face. This post will discuss some of the most basic considerations that need to be taken into account.
Choice of business structure
The first and key decision is deciding upon the right business structure for your organisation. Will an Australian organisation be created or will it be run via an offshore entity? The factors that will contribute to what will be the right option for any given company are by their nature specific to the individual circumstances of each business, but will include issues such as taxation, contractual factors, and employment and visa concerns.
In practice, the majority of companies will set up a new subsidiary for Australian operations, with the process of registering an Australian branch of a foreign company being somewhat more complicated. Regardless of which option is chosen, the process is done via ASIC (Australian Securities Investment Commission). When a foreign company does decide to use a new subsidiary, the most common option to use is a proprietary private company limited by shares (Pty Limited), but in reality they have another four options of the type of entity, including as a joint venture (incorporated or unincorporated), discretionary trust, partnership, or public company.
Directors and officers need to be aware of the their duties and obligations under the the requirements of the Corporations Act 2001 (Cth), which relate primarily to issues such as reasonable care, due diligence, honesty and the proper use of information and position. Serious penalties exist for breaching the duties under the Corporations Act, ranging from legal proceedings and fines up to criminal charges in the most severe of cases. As part of meeting the standards of the Corporations Act, directors are required to actively partake in the interests and affairs of the company. This involves taking positive steps to ensure he or she is adequately informed about the financial affairs of the company, with the ultimate rule being that directors must prevent insolvent trading.
A directors' compliance program should be developed and implemented to ensure that the requirements of the Corporations Act are met, particularly in regards to the maintaining of proper financial records.
Foreign entities either already working in Australia or looking to enter the market should consider preparing template employee contracts/agreements. Federal and state employment is highly developed and informs nearly all levels of the employer-employee relationship, and it is important that foreign companies are aware of their obligations and rights.
The Australian government has recently made sweeping changes to the Temporary Work (Skilled) visa (subclass 457). This visa is commonly used by foreign controlled subsidiaries to sponsor its foreign employees for both permanent and temporary Australian visas, typically for executives and technical/expert staff. It is important that foreign companies are aware of these changes and how they will impact their plans, when the changes are implemented from March 2018.
It is important that foreign entities recognise and appreciate the value that their intellectual property holds, and take appropriate steps to ensure that their IP is protected in Australia—just because it is covered in the home jurisdiction does not mean it is in the Australian market! The Australian system protects IP through a mixture of legislation and common law. Trademarks, design, copyright and patents are all covered. It is extremely advisable that foreign companies immediately register their intellectual property in Australia as soon as they begin planning their operations in the jurisdiction.
Foreign investment regulation
The foreign investment framework in Australia is governed by a mixture of the Foreign Acquisitions and Takeovers Act 1975, its related regulations, and Australia's Foreign Investment Policy. Investors are expected to understand and abide by their obligations and requirements under this framework. Certain investments will have to submit a proposal to the Australian Foreign Investment Review Board (FIRB) for their approval.
Obtaining a commercial property
Foreign companies have to choose whether they will buy or lease commercial premises when they enter the Australian market. Generally, most new entities will favour entering into a lease. As with any property dealings, it is important that a foreign entity negotiating either a purchase or lease have appropriate legal advice and assistance.
Use of standard contracts
In Australia, contracts are governed by the common law, with some limited supplementation from legislation. For a contract to be valid and enforceable, it requires all of the basic elements of offer, acceptance, consideration, intention to create a legal relationship and certainty. Because of the complex nature of the common law system, it is recommended that foreign entities prepare standard contracts for use commercially. Additionally, foreign entities need to be aware of statutory warranties on goods and services that cannot be contracted out of.
Obviously the setting up process for foreign entities in Australia is a complicated process and this article does not encompass all the concerns that will need to be considered. It is important that relevant experts are consulted at each step of the way to ensure that foreign entities are meeting the strict Australian legal requirements. It is best to 'get it right' the first time and avoid mistakes which could result in costly and time-consuming consequences further down the line.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.