LLC vs Pty Ltd in Australia

LLC vs Pty Ltd — the practical differences

• Limited liability. Both protect owners from company debts, subject to guarantees and director liabilities.
• Tax. A US LLC is typically a pass-through — profits flow to members' personal returns. An Australian Pty Ltd is a separate taxpayer at 25 per cent (base rate entities) or 30 per cent, with the imputation (franking) system relieving double taxation when dividends are paid.
• Owners. LLCs have members holding membership interests. A Pty Ltd has shareholders holding shares, with rights set by the constitution or replaceable rules and usually a shareholders agreement.
• Management. LLCs can be member-managed or manager-managed. A Pty Ltd is managed by directors who owe statutory duties.
• Residency. A Pty Ltd must have at least one director who ordinarily resides in Australia. There is no equivalent requirement for a US LLC.
• Limits. A proprietary company can have no more than 50 non-employee shareholders and generally cannot raise funds from the public.

Setting up a Pty Ltd

1. Choose a company name and check availability, then reserve or register with ASIC.
2. Appoint directors (at least one Australian resident) and a secretary if desired; every director needs a Director Identification Number before appointment.
3. Decide share structure — classes, numbers, and who holds them. Get this right at incorporation; changing it later costs more.
4. Adopt a constitution rather than relying on the replaceable rules if there is more than one shareholder.
5. Register for an ABN, GST if turnover requires it, and PAYG withholding if hiring.
6. Put a shareholders agreement in place covering vesting, drag and tag, deadlock and exit.

For US and overseas founders

Common structures for entering the Australian market:

• Pty Ltd subsidiary — a local company owned by the foreign parent. Preferred where you will contract, employ or hold assets here.
• Registered foreign company — a branch registered with ASIC and issued an ARBN. Cheaper to establish, but the parent is directly exposed to Australian liabilities.
• Employer of record — for testing the market with one or two staff before committing to an entity.

Watch the transfer pricing, permanent establishment and withholding tax questions with your accountant before you pick, and expect Foreign Investment Review Board considerations on acquisitions of Australian businesses or land.