Starting a Business in Australia - Trust as a Business Structure

Perhaps one of the most important criteria for starting a business in Australia is choosing the right business structure. And that largely depends on the type of business you’re engaged in, the sort of risk you’re willing to bear and the level of business transactions you’re anticipating. When you select a Trust as a business structure, you’ll obtain tax benefits and distinct advantages not available to sole traders or partnerships.

What exactly is a Trust?

Before deciding on setting up a Trust, you may want to know whether or not a Trust is a separate legal entity or whether the Trust is actually you doing business. The answer to both those queries is No. Unlike a private limited company, a Trust does not have separate legal status nor is it similar in structure to a sole trader or partnership. What the Trust actually reflects is the legal relationship between two or more persons; i.e. between the Trustee and the Beneficiary or Beneficiaries.

If you’re the person who sets up the Trust, you’re termed as the Settlor. However, the Settlor is generally a lawyer. In a Trust, the Trustee is entrusted with the care of the income and property of the Trust which must then be administered with due care for the benefit of the Beneficiaries. The Trustee holds legal title to all Trust assets. The Trustee can either be an individual or a body corporate such as a private limited company. Beneficiaries will not be liable for any of the Trust debts or losses.

Distinct Advantages of a Trust

Trusts are generally set up due to the flexibility this business structure affords for income and asset distribution. Trust assets are well protected and cannot be indiscriminately used or disposed off. The tax advantage of Trusts is that it permits income to be split among the beneficiaries. This promotes good tax planning as the overall tax liability is spread over several individuals who have lower personal tax rates and tax-free thresholds.

This is an excellent tax minimisation strategy as you can then benefit from the tax allowances of several individuals. As a Trustee, you’ll control the Trust assets and be directly involved in the management of the Trust. Should the Trust accumulate significant wealth, this can be handed down to future generations and successors of the beneficiaries.

Definite Drawbacks of a Trust

A glaring drawback of a Trust is that it’s a fairly expensive business structure both to set up and administer. Trusts involve rather complex legal structures. You may need the services of a lawyer to fully comprehend the intricacies of a Trust relationship. Once the Trust has been established, making changes to the structure can be somewhat complicated and possibly difficult to accomplish. You won’t be able to expand your Trust ‘business’ by retaining profits in the way you’re able to do with other business structures such as a sole trader, partnership or private limited company.

Your losses remain with the Trust and only the profits of the entity can be distributed to the Trust beneficiaries. The Trust Deed and applicable Trust laws govern your control over the management of the Trust. This means that you don’t have the flexibility or power afforded by other business structures to control the Trust. And the type of Trust that you set up significantly impacts your control over it.

Trust Deeds and Obligations of the Trustee

A Trust Deed is a crucial legal document that details all the assets and properties of the Trust, the reason the Trust was set up and the rights and obligations of both the Beneficiaries and the Trustee. The Trust Deed will also outline how the Trust assets and income will be distributed among all the Beneficiaries. It also sets out specific rules and arrangements that govern how the Trustee will manage the Trust. Hence a Trustee can only operate within the strict confines of the Trust Deed.

By law, however, a Trustee has a fiduciary duty to the Beneficiaries. A Trustee is legally bound to act in good faith and in the best interests of the Beneficiaries, keep complete and comprehensive books of accounts and disclose all transactions fully to the Beneficiaries.

Why Run a Business as a Trust?

For one, the Trustee actually holds title to the property and assets of the Trust and is legally bound to administer them for the benefit of the Beneficiaries. Trust income must be distributed inn accordance with the Trust Deed. Since you can draw up a Trust Deed with your own clauses on income distribution, a Trust therefore gives you the freedom and the flexibility to distribute income as you desire. This is unavailable in other forms of business structures such as a partnership or sole trader. You can engage in some very beneficial tax planning strategies especially if the Trust income or profits is fairly large.

Should You Set Up a Trust to Run Your Business?

That really depends on how you view the advantages you gain from having a Trust. With a Trust, tax planning and asset protection benefits will accrue to you, in particular tax minimisation strategies. These are vital if your business deals in real estate or has large income streams. These important considerations will help you decide if a Trust is the right business structure for you.

How Do You Set Up a Trust Business?

Like other business structures, you must obtain your Australian Business Number or ABN and Tax File Number or TFN from the Australian Taxation Office (ATO). You must have a business name registered. You’ve also got to get your Trust Deed drawn up by a lawyer. In addition, you may have to consider incorporating a private limited company to transact business and a Trust to distribute the income.

Guidance to Starting a Business

When you’re sure you want to take the plunge into the world of business, make sure you get good guidance on starting a business the right way. Starting a Business Now can help you through all the critical steps of crystallising your ideas into a business entity in Australia. With comprehensive and affordable business start up packages you’ll have all the help you need to register your business, sort out your ABN and GST with the ATO, design your website as well as assistance in marketing your new enterprise!

Article Source: http://casinoarticles.us

Starting A Business Trust

Please Rate this Article

5 out of 54 out of 53 out of 52 out of 51 out of 5 

Not yet Rated