QLD Company Limited by Shares, as Trustee for a Trust or Both?

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Bman

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28 November 2014
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I'm starting an online business and have been advised by a lawyer to start a company limited by shares but when I spoke to the accountant, he suggested a company as trustee for a trust.
- Example Pty Ltd as trustee for the Example Unit Trust, as business owner
- Bman as trustee for the Example Family Trust, as unit holder
- Bman as primary beneficiary, and all relatives and wholly owned entities as possible beneficiaries

Under commercial law, is the company Example Pty Ltd a company limited by shares?
 

Rod

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Accountants like that structure - more annual work for them :)

Be clear that you get the benefits that a trust structure costs else you just lose money.

Is the company Example Pty Ltd a company limited by shares?
Not sure what you mean. Companies have limited liability and they have shares. Think you are confusing two different concepts.
 

Bman

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28 November 2014
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Accountants like that structure - more annual work for them :)

Be clear that you get the benefits that a trust structure costs else you just lose money.


Not sure what you mean. Companies have limited liability and they have shares. Think you are confusing two different concepts.

Ok thank you. I guess the question then becomes is it easier to bring on partners as part owners as share holders or unit holders? Is there any differences then ownership rights obligations and control?
 

Rod

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is it easier to bring on partners as part owners as share holders or unit holders?
I don't know enough about trusts to comment on unit holders. Bringing people in as shareholders is easy if they want in to your business. Getting them out again is the problem. Recommend you read up on shareholder agreements.

Is there any differences then ownership rights obligations and control?
Yes. Unit holders have no say in the running of the business. Shareholders have a little more say and can become directors.
 

Sarah J

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16 July 2014
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A Company Pty Ltd is a proprietary company limited by shares. This is defined under s 45A of the Corporations Act.

Essentially, a proprietary company is a business registered in Australia, with separate legal personality (i.e. they are treated separately and individually to its shareholders/owners), that is smaller (has less than 50 employees and limited annual turnover) and therefore, subject to less stringent financial regulations.

Limited companies are good in that its shareholders have limited liability. This means if the company is in debt, becomes insolvent or owes debt due to any legal action, its individual shareholders only have to contribute up to the amount left unpaid in their share subscriptions. This means shareholders do not bear the full risk of any debt, loss and liability that the company may incur down the track.

Having a trust set up as a shareholder of the company means you have all the benefits of a small limited company and the taxation benefits that come with a trust. However, trusts can be costly and complicated so make sure you understand and will earn enough through the company to reap in the taxation benefits.
 

Bman

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28 November 2014
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A Company Pty Ltd is a proprietary company limited by shares. This is defined under s 45A of the Corporations Act.

Essentially, a proprietary company is a business registered in Australia, with separate legal personality (i.e. they are treated separately and individually to its shareholders/owners), that is smaller (has less than 50 employees and limited annual turnover) and therefore, subject to less stringent financial regulations.

Limited companies are good in that its shareholders have limited liability. This means if the company is in debt, becomes insolvent or owes debt due to any legal action, its individual shareholders only have to contribute up to the amount left unpaid in their share subscriptions. This means shareholders do not bear the full risk of any debt, loss and liability that the company may incur down the track.

Having a trust set up as a shareholder of the company means you have all the benefits of a small limited company and the taxation benefits that come with a trust. However, trusts can be costly and complicated so make sure you understand and will earn enough through the company to reap in the taxation benefits.

Ok, thank you very much.

If the company is trustee for a trust and not a trading entity then are shares in that company worth anything?
Is an investor going to be interested in owning units in a trust or shares in a company?

Thank you again
 

Rod

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If the company is trustee for a trust and not a trading entity then are shares in that company worth anything?
If the company does no other trading/business, then generally - no.

Is an investor going to be interested in owning units in a trust or shares in a company?
I can't answer as to how other people think about this kind of investment. I know that I'm less inclined to own units that give me no say over how my money is used, particularly in a speculative online business. IMO trusts in this situation are better suited to family only investments, and only then if the tax benefits outweigh the additional costs you incur in having a trust.
 
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Sarah J

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16 July 2014
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Melbourne, Victoria
I agree with Rod, shares in a trustee company are usually owned by family members or related persons. The benefit of a company as a trustee is that any loss or liability incurred as a trustee will not be born by the individual personally but will be absorbed in the company. The company can then claim this as a loss against any income it earns (i.e. fees paid for managing the trust). The reason most investors do not like investing in company trusts is that it has very little source of income (due to fiduciary duties and conflict rules owned to beneficiaries of the trust), can hardly profit from its position, and has relatively high potential for liability and many responsibilities and duties.