Legal Considerations for setting up in Australia

1. FINANCIAL INSTITUTIONS
ENERGY
INFRASTRUCTURE, MINING AND COMMODITIES
TRANSPORT
TECHNOLOGY AND INNOVATION
PHARMACEUTICALS AND LIFE SCIENCES
Legal considerations
for setting up and contracting in Australia
Jehann Mendis
18 February 2013

2. Australian legal environment
• Democratic country, 6 states and 2 territories
• State and Federal laws
– States have general power
– Certain powers given to Federal government
• Head of State is UK monarch, represented by
– Governors in each State
– Governor-General at a Federal level
• Legal system based on English common law system with slight
differences
• Much of the law is embodied in State-based legislation
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3. Setting up – Business entities
• A wide range of business structures to choose from
• Choice depends on investors needs – financial and tax
considerations
• Common types of entities
– Representative office
– Branch office
– Australian subsidiary
– Partnerships
– Joint ventures
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4. Business entities – Representative office
• Usually used by foreign entity to assess Australian market
• Can promote goods and services of foreign entity
• Cannot conduct business on its own and is subject to several
restrictions
• Cannot contract
• Can be viewed as a permanent establishment for tax purposes
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5. Business entities – Branch office
• To carry on business a foreign company must establish a branch
office
• Registration under Corporations Act 2001
– ARBN (Australian Registered Body Number)
• Local agent – We can help
• Not subject to limitations on scope of activities
• Income and capital gains tax in Australia levied at corporate rate
(30%)
• Some deductions may be allowed
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6. Business entities – Australian subsidiary
• Liability limited to operations in Australia
• Allow more flexibility for tax purposes
• Corporate tax is at 30% on worldwide income of subsidiary
• Proprietary companies
– Limited to maximum of 50 non-employee shareholders
– At least one Australian resident director
– Generally cannot raise equity capital from the public
• Public companies
– Can raise equity capital, subject to disclosure rules
– At least two Australian resident directors
– ASX listing rules compliance if listed
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7. Joint ventures
Unincorporated joint ventures
• Common for the upstream E&P sector
• Created by agreement, not a legal entity
• Usually structured so as not to create a partnership - avoids joint
and several liability
• Each joint venturer taxed individually
Incorporated joint ventures
• Joint venture company
• Separate legal entity from JV participants
• Subject to the Corporations Act
• Liability of participants is limited to capital contributions (subject to
certain exceptions)
• Shareholders’ agreement
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8. Business acquisitions
Shares Asset
• Easier to implement – transfer of • More complicated – transfer title to
title to shares assets and liabilities
• More comprehensive due • Buyer can chose assets and carve
diligence out liabilities
• Target’s shareholders as the • Business carried on by new entity
Sellers • Stamp duty will likely apply
• All assets and liabilities transfer • Buyer unlikely able to use
• Business carried on by same entity tax losses
• Stamp duty?
• Use of tax losses by Buyer?
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9. FIRB approval?
Regulated transactions include:
• acquisitions of shares in prescribed corporations
above $248 million
• acquisitions of assets of Australian businesses
worth more than $248 million that result in foreign
control
• acquisitions of non-rural land (irrespective of
value)
• investments by foreign governments or their
agencies (irrespective of value)
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10. Foreign persons and notifiable interests
• Substantial interests in companies
– a single foreign person (and any associates) has 15% or more
ownership; or
– several foreign persons (and any associates) have 40% or more in
aggregate ownership
• Controlling interests
– exists re a company where a substantial interest exists, unless the
Treasurer is satisfied that the person is not in a position to control the
policies of the company or business
• An entity with the above foreign ownership is considered a foreign
person
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11. Services contracting
• Services agreements similar to that in the UK
• Contracts interpreted in accordance with similar principles
• Standard form documents
– AS2124 general conditions of contract
• Key provisions
– Liability provisions and risk allocation
– Scope of work and variations
– Liability caps
– Latent site conditions
– Liquidated damages for late completion
– Termination and suspension rights
– Force majeure and extensions of time
– Defects liability period
– Payment terms and interest on late payment
– Rise and fall
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12. Tendering - Types of selection processes
Process Description Usually used for
Open Open to general public by Simpler lower cost, lower
way of public advertising risk projects
Minimum capability Principal invites contractors Routine projects, although
based on minimum not always low cost
capability. Principal usually
chooses from selection of
approved contractors
Pre-qualified Initial expressions of More complex projects
interest for pre-qualification
followed by formal invitation
to tender for those who pre-
qualify
Invited Principal invites tenders More specialised projects
from recognised
contractors with specific
project capability
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13. Typical tender documents
Document Description
General notice Summary of project and work required, including key
dates, contact details and tender submission timing
IM setting out tender Including delivery method, selection criteria, evaluation
information process etc
Tender form For completion by tenderers. Usually needs to provide
overall cost, cost breakdown, works programme and
details of personnel, equipment and subcontractors
General conditions of Main contractual terms for work performance (usually
contract containing conditions as per previous slide). Note that
special conditions may be included
Specification and Sets out technical criteria. May contains drawings and
scope additional information (e.g. terms of relevant
environmental or development approvals)
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14. Tendering – Things to out look for
• Risk allocation
• Special conditions that are unique to the project (particularly if
different from client’s usual practice)
• Special conditions required by third parties (e.g. compliance with
environmental or development approvals)
• Third party agreements contractor must comply with or take a
novation of
• Tenderers should:
– ensure they promptly advise principal of errors, omissions, ambiguities
or discrepancies
– obtain clarification from principal where there is ambiguity to ensure full
and complete understanding
– make sure they understand the risk allocation
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15. Our international practice
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16. Disclaimer
The purpose of this presentation is to provide information as to
developments in the law. It does not contain a full analysis of the law nor
does it constitute an opinion of Norton Rose Australia on the points of law
discussed.
No individual who is a member, partner, shareholder, director, employee
or consultant of, in or to any constituent part of Norton Rose Group
(whether or not such individual is described as a “partner”) accepts or
assumes responsibility, or has any liability, to any person in respect of this
presentation. Any reference to a partner or director is to a member,
employee or consultant with equivalent standing and qualifications of, as
the case may be, Norton Rose LLP or Norton Rose Australia or Norton
Rose Canada LLP or Norton Rose South Africa (incorporated as Deneys
Reitz Inc) or of one of their respective affiliates.
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17. Contact
Any queries please contact:
Jehann Mendis | Partner
Norton Rose Australia
Level 39, 108 St Georges Terrace, Perth, Australia
Tel +61 8 6212 3409 | Mob +61 412 920 136 | Fax +61 8 6212 3444
jehann.mendis@nortonrose.com
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