How To Set Up A Subsidiary Company

Thinking about opening a new entity under your existing business? Setting up a subsidiary company in Australia can be a smart way to expand, segment risk and unlock growth - whether you’re an Australian parent setting up a new division, or an overseas company entering the Australian market for the first time.

Like any company setup, there are specific legal steps and ongoing compliance obligations you’ll need to manage. The good news: with a clear plan and the right documents, it’s a straightforward process.

In this guide, we’ll unpack what a subsidiary is, the key benefits and risks, a practical step-by-step setup process, and the legal documents you should have in place to protect your group from day one.

What Is A Subsidiary Company?

A subsidiary is a company that is controlled by another company (the “parent”). In Australia, control usually means the parent owns more than 50% of the shares or can control the composition of the board. The subsidiary is its own legal entity with its own Australian Company Number (ACN), bank accounts and contracts.

This separate legal status can be a big advantage. It helps isolate liabilities within each entity, supports clearer reporting, and allows different parts of your business to operate under their own brands, teams and budgets.

If you want a deeper primer on group structures and how they operate here, it’s worth reading how subsidiary companies are explained for Australian businesses and how they differ from holding companies.

Is A Subsidiary Right For Your Group?

Before you incorporate, pause to consider your goals and the alternatives (such as operating a division under your existing company or contracting with local partners). A subsidiary can be the right choice if you want to:

• Ring-fence risk for a new product, market or project.
• Attract investment at the subsidiary level without diluting the parent.
• Offer employee equity in just one part of the business.
• Meet regulatory or licensing requirements that require a local entity.
• Prepare for a future sale of part of your operations.

On the other hand, multiple entities mean multiple reporting obligations, added governance tasks, and intercompany agreements to manage. If you’re unsure, a short feasibility review (financial, operational and legal) can help you decide whether a subsidiary is the best fit now - or if a simpler structure will do.

Step-By-Step: How To Set Up A Subsidiary Company In Australia

Here’s a practical roadmap you can follow. Each step builds toward a compliant, bankable company that’s ready to trade.

1) Map The Ownership And Governance

Decide who will own the shares (usually the parent company) and in what proportions. Confirm who will be appointed as directors and company secretary. At least one director must ordinarily reside in Australia.

It’s common to appoint both a local director and a parent representative to balance oversight and local decision-making. Document decision rights early so everyone understands the boundaries.

If you’re navigating director requirements for the first time, it helps to review the Australian resident director requirements.

2) Select A Company Name And Constitution

Choose a company name that can be registered with ASIC (or register a numbered company and add a business name later). Most groups adopt a consistent naming convention to make reporting and branding easier.

Next, decide whether to rely on replaceable rules under the Corporations Act or adopt a tailored Company Constitution. A custom constitution can help you align governance with the group’s needs (for example, powers of directors, share classes and dividend policies).

3) Incorporate With ASIC

Register the company with ASIC to obtain an ACN. As part of this process, you’ll provide details of the company name, registered office, principal place of business, share structure, directors and shareholders. After registration, you’ll receive an ASIC certificate of registration and a corporate key.

If you’d like a hand from start to finish, our team can manage the entire Company Set Up process for you.

4) Get Tax Registrations And Open Bank Accounts

Apply for an Australian Business Number (ABN) and Tax File Number (TFN). If your turnover will exceed the GST threshold (or you want to claim input tax credits), register for GST as well.

Open a bank account in the subsidiary’s name. Most banks will need the ASIC registration documents, constitution (if any), director IDs and identity checks for officeholders.

5) Put Group Controls And Intercompany Arrangements In Place

Decide how funds, IP and services will move within the group. You’ll likely need intercompany agreements to document loans, management fees, service provision, or licensing of brand and technology. This is essential for clear accounting, transfer pricing and day-to-day operations.

If the parent will support the subsidiary’s obligations (e.g. landlord asks for one), a formal Deed of Guarantee and Indemnity may be required.

6) Set Up Execution And Decision-Making Processes

Confirm who can sign on behalf of the subsidiary, and how. Many groups rely on section 127 of the Corporations Act (two directors, a director and secretary, or a sole director/secretary) for streamlined execution. For clarity, read our guide to signing documents under section 127. You might also authorise specific officers or employees to bind the company to certain contracts under section 126.

Adopt board and management procedures for approvals, conflicts and record-keeping. This will make audits, funding rounds and due diligence far easier later.

7) Prepare Operational Contracts And Policies

Before you trade, have your key customer, supplier and staff contracts ready to go (more on these below). Strong templates reduce risk and speed up negotiations with early partners and customers.

8) Launch And Maintain Ongoing Compliance

Once you’re live, keep ASIC details up to date, lodge annual statements, maintain company registers and minute key decisions. Build a compliance calendar so nothing slips through the cracks.

What Legal Requirements And Ongoing Compliance Apply?

A subsidiary must meet the same legal standards as any Australian company, plus any group-specific obligations you adopt internally. Here are the key areas to cover.

Directors’ Duties And Governance

Directors owe duties to act in good faith in the best interests of the company, to act with care and diligence, to avoid improper use of position or information, and to prevent insolvent trading. The business judgment rule (set out in section 180(2) of the Corporations Act) provides protection where directors make informed, rational decisions in good faith - we’ve unpacked this in our guide to section 180(2).

Remember: even if the parent owns 100% of the shares, directors must act in the subsidiary’s best interests (which often aligns with the group’s interests, but not always).

Resident Director

At least one director must ordinarily reside in Australia. If your parent is overseas, plan for a local director from day one to avoid delays and maintain compliance with the resident director requirement.

Employment Law

If you hire staff, the Fair Work system applies. You’ll need compliant Employment Contracts, correct classifications and rates under any applicable Modern Awards, and policies covering leave, health and safety, and workplace behaviour.

Consumer Law

If you sell goods or services, you must comply with the Australian Consumer Law (ACL). This covers fair advertising, consumer guarantees, refunds and more. Your customer-facing terms should reflect these rights to avoid misleading or deceptive conduct.

Privacy And Data

If you collect personal information (for example, through your website, sales or HR), you should have a clear Privacy Policy and practices that align with the Privacy Act. Consider whether any cross-border disclosures to the parent will occur, and set safeguards accordingly.

Tax And Reporting

Register for ABN, TFN and GST (where applicable), set up payroll (PAYG withholding and superannuation), and maintain clean intercompany records for tax and transfer pricing purposes. Engage an accountant early to design fit-for-purpose systems - this pays off quickly in group structures.

Licences And Industry Rules

Depending on your industry, you may need additional licences (e.g. financial services, building, health). Confirm local council permits for any premises, and check sector-specific regulations early to avoid delays.

What Legal Documents Should You Have In Place?

Each group is different, but most subsidiaries benefit from a core set of documents. These help clarify relationships, protect IP, and reduce the risk of disputes.

• Company Constitution: Tailored rules for governance, director powers and share rights that suit your group policies and decision-making cadence. You can adopt or update a Company Constitution when you set up.
• Intercompany Services Agreement: Sets fees and scope for back-office support (finance, HR, IT, marketing) provided by the parent to the subsidiary, and vice versa.
• IP Licence Or Assignment: Confirms who owns existing IP (brand, software, content) and how the subsidiary can use it. This supports clear branding and future funding or sale processes.
• Deed Of Guarantee And Indemnity: If a landlord, supplier or lender requires parent backing, use a formal Deed of Guarantee and Indemnity rather than informal promises.
• Customer Terms Or Service Agreement: Your standard terms for clients or customers, aligned with the ACL and your commercial model (SaaS, services, wholesale, etc.).
• Supplier Or Contractor Agreements: Clear terms for key suppliers and contractors to manage delivery, delays, liability caps and IP ownership.
• Employment Contracts And Policies: Compliant employment agreements, plus policies for leave, performance, confidentiality and workplace conduct. A strong set of Employment Contracts is a must from day one.
• Privacy Policy And Data Handling Procedures: Your Privacy Policy and internal processes for collecting, storing and sharing personal information, especially if data flows back to the parent.
• Shareholders Agreement (If Jointly Owned): If the subsidiary is co-owned (e.g. joint venture), a Shareholders Agreement should cover governance, funding, exit, deadlock and dispute resolution.
• Execution And Delegations Policy: A practical matrix for who can sign what (and under which Corporations Act provision). This sits neatly alongside your approach to section 127 execution.

Not every subsidiary will need every document on day one, but getting the foundations in place early makes operations smoother and supports faster growth.

Common Scenarios: Overseas Parent, Joint Ventures And Restructures

Here are three situations we see often, with a few tips to help you plan ahead.

Overseas Parent Entering Australia

International groups often choose a wholly owned Australian subsidiary to employ local staff, hold local contracts and comply with Australian laws. In addition to the general steps above, you’ll need a resident director, a registered office in Australia and careful planning around intercompany pricing and data transfers.

If you’re a US company looking to set up locally, our team regularly handles Australian subsidiary set ups for US companies, including constitutions, execution rules and bank-ready documents.

Joint Venture Subsidiary

Two or more businesses may form a new subsidiary to pursue a project together. This structure can cleanly ring-fence risk and contributions, but the governance must be tight. Agree on decision rights, funding commitments, IP ownership and exit paths in a robust Shareholders Agreement from the outset.

Carving Out A Division As A New Co

Sometimes you’ll spin out a division of your existing company into a new subsidiary. Plan the transfer of assets, staff, leases and contracts carefully. You’ll likely need assignment or novation agreements, updated licences and a communications plan for customers and suppliers. Getting the structure right at this stage can position the subsidiary for a future investment or sale.

Practical Tips To Make Subsidiary Setup Smoother

• Standardise where you can: reusable board templates, intercompany agreements and policy packs save time across entities.
• Keep records clean: minute key decisions, track intercompany balances monthly and align documentation with the accounting treatment.
• Decide on execution rules early: confirm who signs what - it prevents delays with banks, landlords and enterprise customers.
• Protect your brand: ensure brand ownership and licensing are clear, and consider a trade mark for the subsidiary’s trading name if it differs from the parent.
• Design for scale: adopt governance and reporting that work for one entity today and a larger group tomorrow.

Key Takeaways

• A subsidiary is a separate Australian company controlled by a parent - it helps ring-fence risk, streamline branding and support growth.
• Plan ownership, governance and decision rights early, and confirm a local director to meet Australian requirements.
• Incorporate with ASIC, obtain tax registrations, open bank accounts and document intercompany arrangements before trading.
• Directors’ duties, employment law, consumer law and privacy obligations apply to the subsidiary from day one.
• Core documents like a Company Constitution, intercompany agreements, customer terms, Employment Contracts and a Privacy Policy set strong foundations.
• Whether you’re an overseas parent, forming a joint venture or carving out a division, a thoughtful structure and tailored contracts will reduce risk and speed up execution.

If you’d like a consultation on setting up a subsidiary company in Australia, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.