[ESTABLISHING A BUSINESS ENTITY IN AUSTRALIA]
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from the Australian company (an “asset sale”), or purchasing some (or all) of the shares in the Australian company itself (a “share sale”). A foreign investor may need to establish a special purpose vehicle (often a wholly owned subsidiary) for the purposes of acquiring an interest in an Australian business. Under an asset sale model, the business and assets are transferred from the selling entity to the acquiring entity. The sale agreement will document the nature of the business and assets being sold, the obligations of the respective parties (including an appropriate warranty and indemnity framework and the liabilities to be assumed by the purchaser), and the purchase price to be paid. Depending on the nature of the business, various third-party consents and approvals may be required before the assets and business can be lawfully acquired. A purchase of shares involves the acquisition of the business vehicle itself. This means that the purchaser will also acquire all of the assets and liabilities of the relevant entity. A purchaser should be mindful of the various advantages and disadvantages of each of these models when considering an acquisition of an Australian business, conduct a thorough due diligence investigation on the relevant target, and ensure that it obtains legal, taxation, structuring and accounting advice to ensure that a suitable acquisition model is adopted. Some of the key regulatory matters to consider when acquiring an interest in an Australian business are addressed in this section. Australia’s Foreign Investment Framework Relevant Legislation Australia’s foreign investment framework is set out within the Foreign Acquisitions and Takeovers Act 1975 (Cth) ( FATA ), the Foreign Acquisitions and Takeovers Regulations 2015 (Cth) ( Regulations ), and the Australian Federal
Capital Alterations: Companies are required to obtain shareholder approval before undertaking alterations to the company’s share capital. These alterations include capital reductions, selective buybacks and share buy-backs. The percentage of shareholders who must approve a proposed capital alteration will depend on the nature of the proposed alteration, and in some circumstances, may require the passing of a special resolution.
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• Right to Call Meetings of Shareholders: Shareholders who hold at least 5% of the shares with voting rights in a company may, by written notice to the directors, demand that the directors call a meeting of shareholders. Alternatively, shareholders who hold at least 5% of the shares with voting rights in a company may call a meeting of shareholders themselves by following the notice and timing requirements set out in the Corporations Act. • Right to Notice of Meetings of Shareholders: Subject to any restrictions on the rights attached to a shareholder’s shares , shareholders generally have the right to receive written notice of, and attend and vote at, meetings of shareholders. The Corporations Act provides that, as a general rule, at least 21 days’ written notice of a shareholder’s meeting must be provided for private companies. FOREIGN INVESTMENT, THIN CAPITALIZATION, RESIDENCY AND MATERIAL VISA RESTRICTIONS There are a number of avenues by which a foreign investor can acquire an interest in an Australian business. The most common methods of acquiring an Australian business are a direct purchase of the business and assets
ILN Corporate Group – Establishing a Business Entity Series
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