DOING BUSINESS

IN AUSTRALIA Business Organisation and Administration

OCT 2017

WWW.CORRS.COM.AU

DOING BUSINESS IN AUSTRALIA

BUSINESS ORGANISATION

BUSINESS IN AUSTRALIA MAY BE CONDUCTED THROUGH VARIOUS LEGAL STRUCTURES.

The range of legal structures in Australia include:

Companies incorporated in Australia, including

Australian subsidiaries of foreign companies

Registered foreign companies

Partnerships and limited partnerships

Joint ventures

Trust

Sole proprietors

The Corporations Act 2001 (Corporations Act) is the primary source of company regulation in Australia and is administered by the Australian Securities & Investments Commission (ASlC).

The following sets out how business is conducted in Australia via a company structure either incorporated in Australia or overseas. We also consider some of the alternative structures.

COMPANIES INCORPORATED IN AUSTRALIA

Companies assume the rights and liabilities of their members and can hold property. They can sue and be sued in their own name. Generally, the liability of the members is limited to the amount (if any) on the shares respectively held by them. Actual management and control of a company is vested in the board of directors, who are appointed by the members.

Companies must, for the purposes of income tax legislation, appoint a public officer. The public officer is responsible for doing everything the company is required to do for income tax purposes. This person is liable to the same penalties which may be imposed on the company for any default, but is not personally liable for payment of the company's taxes. The Commissioner of Taxation may exempt a company from the requirement to appoint a public officer.

There are various types of companies, but by far the most common is a company limited by shares, being either a proprietary company (called a private company in many other countries) or a public company. A proprietary company must have at least one member, but may not have more than 50 nonemployee members and may not raise funds from the public, whereas a public company has no limits on membership and may raise funds from the public. Public companies may be listed on the Australian Securities Exchange (ASX), in which

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case they must also comply with the ASX Listing Rules.

Relative to public companies, proprietary companies are less tightly regulated and subject to less onerous reporting requirements. Areas in which this more relaxed regulatory approach is evident include the regulations and restrictions in relation to meetings, the appointment, qualification and removal of directors, the giving of financial benefits to directors and related parties, the power to allot shares and the required contents of annual reports.

A proprietary company is further classified under the Corporations Act as being either "small" or "large". Generally, large proprietary companies have more onerous reporting obligations than small proprietary companies. A proprietary company will be "large" for the purposes of the Corporations Act if it (together with its controlled entities) satisfies any two of the following criteria:

consolidated gross operating revenue for the financial year is at least A$25 million;

consolidated gross assets at the end of the financial year is at least A$12.5 million; and

has 50 or more employees at the end of the financial year.

A company limited by shares must have the word "Limited" or "Ltd" at the end of its name (to indicate the limited liability of the company's members), whilst a proprietary company limited by shares must also have the word "Proprietary" or "Pty" as the second last word in its name. In addition, all companies must state their Australian Company Number (ACN) or Australian Business Number (ABN) on all their public documents.

Companies that are residents of Australia for taxation purposes will be taxed on income and gains from sources both in and outside Australia, reduced by any allowable deductions. Conversely, companies that are nonresidents of Australia will generally only be taxed on income with sources in Australia and gains arising from dealing with certain assets that have the "necessary connection" with Australia.

Company groups are not regulated as groups and are treated as individual companies. However, some company groups may be treated as a single entity for income tax purposes.

REGISTERED FOREIGN COMPANIES

Companies that are incorporated outside of Australia that wish to carry on business in Australia must be registered with ASIC. Unincorporated bodies that do not have their head office or principal place of business in Australia must also register with ASIC if they wish to carry on business in Australia. A foreign company applying for registration must lodge an application accompanied by certain prescribed documentation, including a copy of its constitution or equivalent (if any) and a list of its directors, with ASIC. ASIC does not have discretion whether or not to grant registration.

A determination of whether or not a foreign company is "carrying on a business" in Australia requires an examination of all of the circumstances of the company's activities in Australia in light of several provisions of the Corporations Act and a body of common law principles. Specific advice should be sought in each case.

A registered foreign company is given the power to hold land in Australia under the Corporations Act. At common law, a foreign company may sue and be sued in its own name, however, a failure to register under the Corporations Act as a foreign company, when required to do so, may inhibit that company's right to sue.

Some of the more important obligations imposed upon foreign companies registered to carry on business in Australia are set out below.

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NAME AND AUSTRALIAN REGISTERED BODY NUMBER

A registered foreign company may only trade under the specific name registered with ASIC. If the name of a registered foreign company changes, it must formally notify ASIC of the change within 14 days. When a foreign company registers with ASIC, it is given an Australian Registered Body Number (ARBN). An ARBN is to be distinguished from an ABN, which is relevant for taxation purposes. A foreign company must ensure that the ARBN (or, if the last nine digits of the body's ABN are the same as the last nine digits of its ARBN, the ABN) together with its name and place of origin, appear on all public documents and negotiable instruments published or signed by the company in Australia. If applicable, such documents are also required to include a notice of the fact that the liability of the company's members is limited. Public documents include all business letters, cheques, invoices, receipts, orders for goods, orders for services, official notices, contracts, agreements, publications, websites and statements of account of the business. There are certain limited exceptions that may apply. For example, "authorised deposit taking institutions" (eg banks, buildings societies and credit unions) are exempted from certain requirements.

REPRESENTATION IN AUSTRALIA

A registered foreign company must have a registered office in Australia to which all communications and notices may be addressed and which must be open and staffed for certain prescribed hours. ASIC must be notified of the address of the registered office and must be notified of any change in address within seven days of the change. Registered foreign companies must also have a formally appointed local agent, who may be either a natural person, or a company resident in Australia. The local agent is responsible for the company's compliance with the Corporations Act and is personally liable for any contraventions of the Corporations Act. ASIC must be notified of the name and address of the local agent. As with Australian companies, registered foreign companies must, for the purposes of income tax legislation, appoint a public officer.

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REPORTING

Subject to certain exemptions, registered foreign companies must annually lodge with ASIC a copy of their balance sheet, profit and loss statement and cash flow statement for the previous financial year, which must be prepared in accordance with the laws of the company's place of incorporation. These financial reports must be accompanied by any other documents that the company is required to prepare under the laws applicable in its place of incorporation.

ASIC may require registered foreign companies to provide further information if the accounts provided do not sufficiently disclose the company's financial position.

A small proprietary company controlled by a foreign company has to prepare a financial report and directors' report only if it was controlled by a foreign company for all or part of the year and it is not consolidated for that period in the financial statements for that year lodged with ASIC by a registered foreign company.

LISTING ON THE ASX

There are two ways a foreign company can list its equity securities on the ASX:

as an ASX Foreign Exempt Listing; or

as a standard ASX Listing.

Foreign entities listed on an acceptable overseas exchange may be admitted as an ASX Foreign Exempt Listing provided that, amongst other things, they have either net tangible assets or a market capitalisation of at least A$2,000 million at the time of admission, or, alternatively, operating profit before income tax of at least A$200 million for each of the previous three financial years. They are not required to comply with the majority of the ASX Listing Rules, but must

continue to comply with the rules of their overseas home exchange. Companies with an ASX Foreign Exempt Listing are required to provide to the ASX a range of documents and reports on an ongoing basis.

Alternatively, a foreign company may seek admission to the general category. The entity must satisfy the same admission requirements as an Australian entity and will be required to comply fully with the ASX Listing Rules (subject to any specific waivers that the ASX may grant).

To be eligible for admission to the official list as either an ASX Listing or an ASX Foreign Exempt Listing, the foreign entity must establish an Australian securities register, appoint an agent for service in Australia and satisfy the ASX that it will observe the ASX Listing Rules. It is also required to be registered as a foreign company under the Corporations Act.

United States companies, in particular, may also take advantage of an ASX listing through the US offshore offering exemption under US securities laws (Regulation S). The ASX is one of only a few exchanges in the world to have received a no-action letter from the US Securities and Exchange Commission granting relief from some of the more onerous Regulation S requirements in favour of those of the local exchange.

PARTNERSHIPS

A partnership consists of two or more partners (to a maximum of 20 except in the case of certain professional partnerships) carrying on business in common with a view to profit. Partners may be individuals or companies. A partnership is not a separate legal entity from the partners themselves. Partners are jointly and severally liable for all liabilities of the partnership, and this liability is unlimited. Each State and Territory has its own partnership legislation which, together with the terms of any partnership agreement

and the principles of equity and common law, governs the relationship of the partners.

Partnerships are not required to file any financial information concerning the partnership on any public register. Accordingly, partnerships and partners (except corporate partners) are able to keep their financial performance confidential. A partnership need not be audited, but partners are bound to render true accounts and full information regarding all things affecting the partnership to all other partners or their legal representatives.

The income tax implications of a partnership are as follows:

a partnership is not taxed as a separate entity;

a partnership is obliged to file an annual tax return allocation to table the income or loss among the partners in their respective shares;

each partner, in their own tax return for the same tax year, must include their own share of the taxable income or loss of the partnership; and

the partners must adopt a uniform approach to the tax treatment of income and expenditure of the partnership business.

LIMITED PARTNERSHIPS

Legislation in all States provides for limited partnerships, which are partnerships consisting of at least one general partner and at least one limited partner. Limited partners contribute to the capital of the partnership and share in its profits but do not take part in its management. They cannot bind the firm and their liability to contribute to the debts or obligations of the partnership is limited to their capital contributions as recorded in the relevant register for each State or Territory. The obligations of general partners are similar to

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those in an ordinary partnership and their liability remains unlimited.

Limited partnerships are formed upon registration as a limited partnership and they are generally taxed as if they are companies. Since 1 July 2002, certain classes of non-resident investors (eg certain tax exempt entities and taxable foreign residents of specified jurisdictions) investing in eligible venture capital investments through a limited partnership have been able to access the existing exemption for capital gains on venture capital investments.

JOINT VENTURES

In Australian commercial circles, the term "joint venture" is a label for a variety of forms of legal association between investors. Generally speaking, a joint venture is an agreement between two or more parties for the purposes of carrying on a business or undertaking. There is no settled statutory or common law definition of what constitutes a joint venture.

Three relatively common variations exist in Australia:

an incorporated joint venture, where a separate legal entity is incorporated to pursue the interests of the joint venturers, who are shareholders in the company, in a specific project. The taxation implications of this form of joint venture (assuming it to be resident

in Australia for tax purposes) are the same as for an Australian company;

a unit trust, where the beneficial interest in the trust property is divided into units which can reflect the percentage of equity held by each participant and may be independently dealt with. Unit trusts normally have a corporate trustee; and

an unincorporated joint venture, where the investors have a contractual association which lacks both corporate form and equity capital, and which may or may not be a partnership for taxation purposes or under partnership legislation. If it is not a partnership at law or for taxation purposes,

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no partnership tax return is required and each joint venturer must lodge a separate tax return and may adopt a differing tax treatment for the income and expenses referable to its share of the joint venture.

Joint ventures are a common form of business association, especially in the energy and resources industries. For example, unincorporated mining joint ventures have been developed by the mining and petroleum industry in which several companies contract with one another to operate a mine or well but they each separately sell their share of the resources mined.

TRUSTS

A trust is a legal relationship whereby a trustee, being the legal owner of trust property, deals with that property for the benefit of some other person or persons (the beneficiaries) or for some object permitted by law, such as a charitable object. A trust is not a separate legal entity and does not enjoy limited liability, although it is common to use a company as the trustee and thereby limit the potential liability of the trustee.

A trustee owes a high standard of care to beneficiaries, and is subject to a number of duties. These include the duty to act in good faith, to avoid conflicts of interest, to make full disclosure to beneficiaries and not to make a secret profit or gain.

Trusts commonly used to carry on businesses are unit trusts or discretionary trusts. In a unit trust, the beneficial interests in the trust are divided into units, which may be transferred in similar fashion to shares in a company. The holder of a unit is entitled to a fixed share of the profit of the trust. In a discretionary trust however, the identity or interest of the beneficiary is not determined at the time the trust is created.

Trust income is usually taxed in the hands of beneficiaries according to their respective share of the net trust income, and the trustee is not normally taxed on it. It should be noted, however, that:

depending on the ownership and business activities of the trust or the business activities of entities controlled by the trust, a unit trust may be taxed as if it is a company;

the trustee of a trust can be liable for tax in a variety of situations (eg where there are non-resident beneficiaries); and

tax losses are generally trapped within the trust and their future use is subject to satisfying certain complicated tests.

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COMPANY FORMATION

A FOREIGN INVESTOR MAY EITHER INCORPORATE A NEW COMPANY OR PURCHASE A RECENTLY INCORPORATED "SHELF" COMPANY WHICH HAS NOT TRADED.

To incorporate a company, it is necessary to: select an available name; adopt a company constitution or choose to be governed by the replaceable

rules set out in the Corporations Act or a combination of both; obtain written consents from each person who agrees to become a director,

secretary or member of the company; and complete an application form and lodge it together with the prescribed fee with

ASIC. ASIC will register the company and issue a certificate of registration. The company will be given an ACN and may conduct business anywhere in Australia. The company will also need to apply to the Australian Taxation Office for a tax file number and should also apply for an ABN and register for GST where appropriate.

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COMPANY ADMINISTRATION

PROPRIETARY COMPANIES MUST HAVE AT LEAST ONE DIRECTOR. THIS DIRECTOR MUST BE ORDINARILY RESIDENT IN AUSTRALIA (OTHER DIRECTORS OF A PROPRIETARY COMPANY MAY RESIDE OUTSIDE AUSTRALIA). PUBLIC COMPANIES MUST HAVE AT LEAST THREE DIRECTORS, TWO OF WHOM MUST BE ORDINARILY RESIDENT IN AUSTRALIA.

A public company must also have at least one company secretary ordinarily resident in Australia. A proprietary company is not required to have a company secretary, but may do so. If a proprietary company does have one or more secretaries, at least one of them must be ordinarily resident in Australia. All directors and company secretaries must be natural persons who are at least 18 years of age. Typically, the day-to-day management of a company is in the hands of a Managing Director or Chief Executive Officer.

Companies carrying on business in Australia must maintain a registered office in Australia.

For taxation purposes, a public officer who is responsible for the tax affairs of the company must be appointed. Notice of such appointment must be given to the Commissioner of Taxation.

Documents may be executed by a company without using a common seal if the document is signed either by two directors (or the director of a proprietary company whose sole director is also the company's sole secretary), or a director and secretary of the company (section 127(1) Corporations Act). Alternatively, if a company has a common seal, it may execute documents by fixing the seal to the documents, but this must be witnessed by either two directors (or the director of a proprietary company whose sole director is also the company's sole secretary) or a director and a company secretary.

Public companies must hold an Annual General Meeting (that is, a general shareholders' meeting) at least once in each calendar year and within five months of the close of each financial year. There is no such requirement in the Corporations Act for proprietary companies. The financial year of most Australian taxpayers ends on 30 June, although permission can be obtained from ASIC and the Commissioner of Taxation to align the year end with a foreign parent's year end. Accordingly, most Annual General Meetings must be held on or before 30 November.

The directors of a public company must lay before the Annual General Meeting the company's financial report, together with reports from the company's directors and auditors.

The constitutions of larger (particularly public) companies usually provide that a proportion of the directors (often one third) must retire by rotation each year. The resignation and appointment of directors is usually considered at the Annual General Meeting. Other meetings may be convened by directors or shareholders from time to time, in accordance with the company's constitution or the Corporations Act.

A register of certain company information is maintained by ASIC which may be accessed by the public. ASIC must be notified of, amongst other things, changes to officeholders, the issuance of shares and the passing of certain resolutions by the shareholders of the company.

Public and large proprietary companies must lodge annual (and in some cases half-yearly) financial, directors' and auditors' reports with ASIC within three months (for disclosing entities), or four months (for all other companies) after the end of the company's financial year. The reports include information such as financial statements, any required disclosures, information relating to the company's operations during the year, and any dividends paid, or shares issued during the relevant year.

Each year, ASIC provides companies with an annual statement of the company's details within two weeks of the anniversary of its registration date (or another date approved by ASIC (Review Date)). Companies will be required to review the statement of details and advise ASIC if any details are incorrect. In addition to the annual statements, companies must also advise ASIC of certain events (such as changes in members) as they occur. Further, companies are required to pay the review fee within two months of the Review Date.

Companies are required to maintain a register of members, a register of security interests affecting the company's property and, if relevant, a register of option holders and register of debenture holders. Anyone can inspect these various registers.

" Companies carrying on business in Australia must

maintain a registered office

in Australia.

"

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TAKEOVERS

THE CORPORATIONS ACT RESTRICTS A PERSON FROM ACQUIRING A "RELEVANT INTEREST" IN VOTING SHARES IN A LISTED COMPANY, LISTED MANAGED INVESTMENT SCHEME OR AN UNLISTED COMPANY WITH MORE THAN 50 MEMBERS. THIS RESTRICTION APPLIES IF, BECAUSE OF THE TRANSACTION, THAT PERSON'S OR SOMEONE ELSE'S "VOTING POWER" INCREASES FROM 20% OR BELOW TO ABOVE 20%. IT ALSO APPLIES IF THE STARTING POINT IS ABOVE 20% AND BELOW 90%.

The term "voting power" refers to the percentage of votes attached to voting shares or interests in the company or scheme, in which a person or an associate has a relevant interest. A person has a "relevant interest" in securities if, in broad terms, that person:

is a holder of the securities;

has the power to exercise, or control the exercise of, a right to vote attached to the securities; or

has the power to dispose of, or control the exercise of, a power to dispose of the securities.

Acquisitions resulting in voting power of more than 20 per cent are only permitted in specific circumstances including:

an acquisition under a takeover bid;

an acquisition approved by a resolution of the members of the company or scheme;

an acquisition resulting from a scheme of arrangement approved by the Court;

an acquisition resulting from another acquisition of relevant interests in voting shares in a body corporate included (as a primary listing) in the official list of an Australian stock exchange or a foreign exchange approved in writing by ASIC (also known as a "downstream acquisition");

an acquisition resulting from an issue or shares pursuant to a fundraising or an underwriting of a fundraising, in certain circumstances;

an acquisition resulting from a buy-back or participation in a dividend reinvestment plan or bonus share plan; or

an acquisition that does not result in a person's voting power being more than three per cent higher than it was six months earlier, if the person, or any other person, has had voting power in the company or scheme of at least 19 per cent throughout that six month period (the "creep rule").

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SUBSTANTIAL SHAREHOLDINGS DISCLOSURE

THE CORPORATIONS ACT REQUIRES A PERSON ACQUIRING (OR CEASING TO HAVE) A SUBSTANTIAL HOLDING, WHO MAKES A TAKEOVER BID, TO GIVE NOTICE TO THE LISTED COMPANY OR SCHEME AND THE ASX WITHIN TWO BUSINESS DAYS OF BECOMING AWARE OF THE INFORMATION.

THIS ALSO APPLIES IF THE PERSON ALREADY HAS A SUBSTANTIAL HOLDING AND THERE IS MOVEMENT IN THEIR INTEREST OF AT LEAST 1%, IN A LISTED COMPANY OR LISTED MANAGED INVESTMENT SCHEME. IN ADDITION, THE NOTICE GIVEN TO THE ASX WILL BE MADE PUBLIC.

A person will be taken to have a "substantial holding" in a listed company or scheme if the person and their associates together have a relevant interest1 in 5% or more of the voting shares or interests in the listed company or scheme. A person will also be taken to have a "substantial holding" if they make a takeover bid. Once a person becomes a substantial holder, any movement (up or down) of 1% or more in the person's holding must be notified to the listed company or scheme and the ASX within two business days after they become aware of the information. If the person's holding drops below 5%, and the person ceases to be a substantial holder, the listed company or scheme and the ASX must be notified within two business days. If a person makes a takeover bid for a listed company or scheme, they must notify the listed company or scheme and the ASX of their holding in the listed company or responsible entity for the listed scheme (if any) upon making the bid, and on each trading day following any movement of 1% or more in the person's holding during the bid period.

1. For a further discussion of the meaning of the term "relevant interest", see "Takeovers".

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SYDNEY

Level 17 8 Chifley 8-12 Chifley Square Sydney NSW 2000

MELBOURNE

Level 25 567 Collins Street Melbourne VIC 3000

BRISBANE

Level 42 One One One Eagle 111 Eagle Street Brisbane QLD 4000

PERTH

Level 6 Brookfield Place Tower 2 123 St Georges Terrace Perth WA 6000

PORT MORESBY

Level 2 Pacific Place Port Moresby National Capital District 111 Papua New Guinea