LawAnswers.com.au - Australia's #1 Legal Community

LawAnswers.com.au is a community of 10,000+ Australians, just like you, helping each other.
Ask a question, respond to a question and better understand the law today!
Join us, it only takes a minute:

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

Discussion in 'Commercial Law Forum' started by Bman, 28 November 2014.

  1. Bman

    Bman Member

    Joined:
    28 November 2014
    Messages:
    3
    Likes Received:
    0
    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?
     
  2. Rod

    Rod Well-Known Member

    Joined:
    27 May 2014
    Messages:
    2,170
    Likes Received:
    257
    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.
     
  3. Bman

    Bman Member

    Joined:
    28 November 2014
    Messages:
    3
    Likes Received:
    0
    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?
     
  4. Rod

    Rod Well-Known Member

    Joined:
    27 May 2014
    Messages:
    2,170
    Likes Received:
    257
    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.

    Yes. Unit holders have no say in the running of the business. Shareholders have a little more say and can become directors.
     
  5. Sarah J

    Sarah J Well-Known Member

    Joined:
    16 July 2014
    Messages:
    1,314
    Likes Received:
    243
    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.
     
  6. Bman

    Bman Member

    Joined:
    28 November 2014
    Messages:
    3
    Likes Received:
    0
    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
     
  7. Rod

    Rod Well-Known Member

    Joined:
    27 May 2014
    Messages:
    2,170
    Likes Received:
    257
    If the company does no other trading/business, then generally - no.

    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.
     
    Sarah J likes this.
  8. Sarah J

    Sarah J Well-Known Member

    Joined:
    16 July 2014
    Messages:
    1,314
    Likes Received:
    243
    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.
     

Share This Page

Loading...