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Using Trusts - Buying a Business

Discussion in 'Commercial Law Forum' started by Matts business, 25 June 2014.

  1. Matts business

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    I am buying a business with a few friends and would like some advice on using trusts ( trust deed) when doing this. What are the advantages under contract law?
     
  2. Paul Cott

    Paul Cott Well-Known Member

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    Hi Matt,

    With a trust, limited liability is possible if a corporate trustee is appointed. This can be important to provide a level of protection vis a vis debts of the business.
    Also, the structure could provide more privacy than say a company.
    There can be flexibility in distributions among beneficiaries of the trust, and
    Income of the trust is generally taxed as income of the individual.

    Having said all that, it is a relatively complex way to structure things, and a trust can be expensive to establish and maintain and problems can be encountered when borrowing due to additional complexities of loan structures. In addition, the powers of trustees are restricted by what is in the trust deed.

    For further advice, speak to an accountant, one who deals with businesses.

    Hope this is useful.

    Paul
     
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  3. Tim W

    Tim W Lawyer

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    Trusts are not the kind of magic bullet tax shelter that people so often think.
    What makes you interested in using one?
    How have you come to the conclusion that a partnership, or a corporation,
    is not better suited to what you want to do?
     
    John R likes this.
  4. Matts business

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    hey guys, thank you so much for replying. My partners have owned a business in the past and they have been advised by there accountant that using trusts has several benefits. Both in protecting each group from each other and also some tax benefits. We are forming a corporation comprising of two trusts, each trust owning shares in the business depending on initial finances put in. I am still learning how all this works (obviously) and greatly appreciate any advice you throw my way.
     
  5. Tim W

    Tim W Lawyer

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    At risk of sounding glib,
    if you don't understand how the proposed deal works,
    then don't sign up into it.

    You say they have been advised by an accountant. Good.
    Do you have an accountant who has advised you?
    You may find it helpful to take the proposed deal to a separate accountant of your own choosing, and get independent advice.
    Even if it turns out that "everything's fine and always was"
     

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