Raising capital for an Australian startup when the founders live overseas

Australian startups with overseas founders run into two pressure points when they raise money. One is the resident director rule, which tends to fail just as founders relocate for a round. The other is the tax incentives that investors and employees expect, which can change or disappear when the company "flips up" under a foreign parent. Plan the board and the structure before the term sheet, not after it.

The flip-up and what it changes

In a typical flip-up, a new holding company, usually in the United States, is put on top of the Australian company. Existing shareholders swap their Australian shares for shares in the new parent. The Australian company keeps operating and employing people, but it is now a foreign-owned subsidiary. Three things change straight away.

The board still needs a local. Section 201A of the Corporations Act 2001 requires every proprietary company to have at least one director who ordinarily resides in Australia. Nothing in a flip changes that. In practice the founders move to the parent's country, the Australian board shrinks to whoever is left, and the company can end up out of compliance without anyone noticing. Our resident director guide explains the rule.

Reporting can change. A small proprietary company controlled by a foreign company generally has to prepare and lodge financial reports unless it can rely on ASIC relief. See financial reporting for foreign-controlled companies.

Registers and notices. The share register now shows the new parent as sole member, and ASIC must be told about the change of ultimate holding company. These are routine filings, but they're often missed in the rush to close.

Whether a flip needs foreign investment approval depends on the investor and the business. Start with FIRB approval basics and take advice.

ESIC: the investor incentive a flip can end

Australia's early stage investor incentives reward people who buy new shares in a qualifying early stage innovation company (ESIC). From the ATO's ESIC qualification page:

• The company must not be a foreign company under the Corporations Act, and must pass the early stage test immediately after the shares are issued.
• The early stage test has four parts: incorporated in Australia or registered on the ABR within the last 3 income years (a 6-year fallback has its own expense test), total expenses of $1 million or less in the previous income year, assessable income of $200,000 or less, and no listed equity anywhere.
• It must also pass either the 100-point innovation test (self-assessed) or the principles-based test. Points come from R&D spending, an Accelerating Commercialisation Grant, an eligible accelerator, $50,000 or more raised from unrelated third parties, patents, or a research collaboration.

The ATO's investor page sets out the benefits, and its offset calculation page gives the rate. The offset is generally 20% of the amount paid for qualifying shares. It's non-refundable and can be carried forward, but an investor and their affiliates can't claim more than $200,000 in an income year, so the full 20% applies to up to $1 million of eligible investment. Gains are disregarded on qualifying shares held for at least 12 months and less than 10 years. Investors who don't meet the sophisticated investor test are limited to $50,000 a year (a maximum offset of $10,000), and going over that limit loses both benefits for that year's shares.

Two consequences for a flip are spelled out on the ATO pages:

1. New money into the foreign parent isn't ESIC money. The parent is a foreign company, so investors in later rounds at parent level don't get the offset.
2. The swap can end the CGT concession. If a scrip-for-scrip or newly incorporated company roll-over applies to qualifying shares after their first anniversary, the cost base resets to market value at the exchange, and the modified CGT treatment ends from then on.

Local angels who invested on the strength of ESIC will want to understand this before they vote on the flip.

Employee options after the restructure

The ESS start-up concession can reduce an employee's taxable discount to nil. The ATO's conditions include that the employing company is an Australian resident taxpayer (it can be a subsidiary of the issuing company), a maximum 15% discount on shares or an exercise price at least equal to market value for rights, and a 3-year minimum holding period. The ATO's standard ESS documentation adds the start-up tests. These are that the group is unlisted, the company and its connected entities were incorporated less than 10 years ago, and aggregated turnover was under $50 million in the prior year. A flip into a long-established group can fail the age test, so check before re-papering the option plan.

R&D Tax Incentive

On business.gov.au, an eligible R&D entity includes a company incorporated under Australian law, with a minimum of $20,000 of R&D spending unless a research service provider is used. The ATO's rates page gives the refundable offset as the company tax rate plus an 18.5% premium. It's available to entities with aggregated turnover under $20 million that aren't controlled by income tax-exempt entities. Aggregated turnover includes connected entities, generally at a 40% control threshold, so a new parent's revenue counts. business.gov.au also notes that changes announced in the 2026–27 Budget start from 1 July 2028.

Crowd-sourced funding needs a second director

If you raise through crowd-sourced funding (CSF), s201A(1A) requires a proprietary company to have at least two directors while it has CSF shareholders. If there are only two, at least one must ordinarily reside in Australia. If there are more than two, a majority must.

What investors expect from the board

Venture investors read the board as a governance signal. A resident director who has never seen a management account or a cap table is a diligence red flag. What tends to satisfy them:

• a resident director with a written engagement, a Director ID and D&O cover in place
• a decision protocol that makes clear what the local director signs and what goes to the full board
• current registers, ASIC filings and annual review history that a data room can show
• investor nominee seats kept separate from the compliance role.

Our Resident Director + Compliance package (A$4,490 a year, ex GST) covers the resident director, registered office and compliance calendar for most funded startups. Compare options on pricing. We don't advise on ESIC, ESS or R&D eligibility, and none of the above replaces your tax adviser confirming it for your company. Tech companies should also read SaaS and tech subsidiaries.

General information only, current at 27 October 2026. Not tax, legal or investment advice.

General information about Australian law and practice, not legal or tax advice for your circumstances. Check the official sources, or ask your adviser, before you act.