When a company is applying for incorporation, the application must select the state or territory in which the company is taken to be registered. Similarly, when a trust deed is drafted, a jurisdiction must be selected which determines the governing law of the deed. This article summarises why a jurisdiction is selected, and provides some guidance for selecting the jurisdiction.
Why do companies have a state or territory which they are ‘registered in’?
When a person applies to the ASIC to register a company, they must nominate a state or territory in which the company is registered. This nomination is made on the Form 201 which is submitted to ASIC.1
While all companies are governed by the federal Corporations Act 2001 (Act), all companies must be registered in a state or territory. The state or territory of registration is listed on the company’s certificate of registration2 and is also publically available on the ASIC Register.
Why do trust deeds have a governing law?
For the products with a trust deed (Discretionary, Unit, SMSF), the customer must choose a jurisdiction in the product interface, which is then inserted into the trust deed as the deed’s governing law.
The implications of this choice is that:
- the deed is governed by the laws of the selected jurisdiction
- all parties to the deed submit to the jurisdiction of the courts within the selected jurisdiction.
However, while the parties to the deed agree that the relevant law is to apply, some case law suggests this may not be determinative. We discuss this further below.
How do I decide which state or territory should be the governing law?
There is little guidance in the Act relating to the choice of state or territory in which a company is registered.
The Act does make it clear that the company’s legal capacity and powers do not depend in any way on the particular state or territory in which it is registered.3
Section 119A, Note 3, of the Act provides the following:
“A law of a State may impose obligations, or confer rights or powers, on a person by reference to the State or Territory in which a company is taken to be registered for the purposes of this Act. For example, a State or Territory law dealing with stamp duty on share transfers might impose duty on transfers of shares in companies that are taken to be registered in that State or Territory for the purposes of this Act.”
As this note is expressed in discretionary language, it acts as a form of guidance, rather than prescribing consequences for a choice of state or territory.
In the absence of any statutory or judicial guidance, we suggest that a company should be registered in the state or territory in which it intends to primarily conduct its business or where its registered head office is located.
Unlike the trust documents, the state or territory in which a company is registered does not mean that the company submits to the jurisdiction of the courts within that selected jurisdiction. Instead, this will be determined by the subject matter of those proceedings. Separately, the shareholders may then agree in a shareholders agreement that they (and the company) submit to the courts in a selected jurisdiction (and it would make sense for this to be the state or territory of registration).
The starting position is that a deed which expressly provides a governing law will be governed by the laws of that state or territory, and all parties to the deed will be bound by those laws.
However an express term as to governing law will not necessarily be determinative of the issue. For example, a court will not give effect to a choice of law made in order to evade the application of a law which would have applied had the parties not chosen some other governing law: Akai Pty Ltd v The People’s Insurance Co Ltd.
Furthermore, in the Victorian case of Ballard,4 Justice Kyrou provided that in the absence of an express or implied choice of the proper law of the trust by the settlor, the proper law is the law with which the trust has its closest and most real connection. In ascertaining that law, the following considerations are particularly relevant:
- the place of administration of the trust
- the place where the assets of the trust are situated
- the place of business or residence of the trustees
- the objects or purposes of the trust and the places where they are to be fulfilled.
Therefore, when deciding which jurisdiction to choose for your trust deed, it is important to evaluate each of the above factors from Ballard. As there is no judicial guidance on which of the above factors are the most important, each factor has to be given an equal weighting.
What does appear to be clear is that when considering which jurisdiction to choose, the above factors are more relevant than where the trust itself is executed, at least from a judicial perspective.