Trust structure for a new business

[mookie]

We are in the process of starting our first business and want to make certain we get all the legal issues that could arise covered before we go to far and start getting ABN's and business registrations etc. It seems from reading past posts that setting up some sort of discressionary trust with a company as the trustee is the way to go but i haven't found much info that doesn't involve property purchases. So i hope i'm not asking questions that haven't been asked 100's of times before. I want to be more aware of our options before i go and make an appointment with Dale as i don't want to be wasting his time with stupid questions. This is all very new to me and it's quite daunting anyway just trying to get a business off the ground. I'm curious as to the best way to set up the structure of the trust, no property purchases will be involved at this stage, it's purely and simply being created for the business, and to protect our existing asset which is a house in Launceston. We will need to use some equity in the property to get the business started so is it possible to use our personal asset to finance a business owned by a trust or will we have to sell the property to the trust? If so can it be a nominal selling price or wouuld it have to be market value? Only my wife and myself will be involved, should we be either directors, shareholders, beneficiaries or all of them? Is it necessary to get someone else involved to be directors if we are the beneficiaries? It sounds very confusing to me so i hope someone else can make sense of it. I know this is my first post but if someone has a moment to share some wisdom it will be greatly appreciated. Thanks in advance. M.

[Jas]

Don't use a trust for a trading business. Use a company.

Jas

[DaleGG]

HI

In a perfect world it would be good if you could nominate one of you as the risk person and one as a safe person. The safe person should have ownership of the home (you may need to transfer 1/2 to one of you and so I would suggest talking to your solicitor abt this as different states have different rules) and perhaps ownership of the shares in the trustee company, or, in the trading company if you choose to use a company instead as Jas suggested.

The other person, the risk person, should own nothing of value and will be the director of the trustee company or trading company.

This will strengethen your asset protection.

If you refinance your IP with a LOC then you can use the funds however you wish which will include allowing the company or trust to access those funds for the business.

No-one else is required to be involved.

I hope that this helps. If not, just ask away and we will all do our best to answer what we can. Won't we guys?

Dale

[mookie]

thankyou very much for the replys, you've given us some food for thought. If anyone can recommend a solicitor in Melbourne feel free to contact us. We expect to get things moving within the month. Cheers.

call_me_mooks@hotmail.com

[bicko]

An Idea might be to, make business Pty Ltd, have the risk taker as the Director. Then have a Discretionary Trust (with corporate trustee) as the sole share holder of the Business coy.

Flexibility with a high level of asset protection for the future.

The main advantage of a Pty Ltd over a Trust, is that you do not have to distribute all of the profits out of a Pty Ltd (unlike a trust). You may need to pay 30% but it may beat paying 48% (if you run out of distribution options with a trust)

cheers

bicko

[Aceyducey]

Bicko,

The issue with the company is that when you DO wish to take some of the profits out of the company it's very common to then be taxed a second time.

It's got to be set up just right to avoid this.

That's apart from the legal liability for directors (Directors' indemnity insurance is well worth considering), the ease of suing companies, etc

Cheers,

Aceyducey

[mookie]

this is fantastic info guys, absolutely brilliant. I didn't even know about directors insurance and i'll be better armed when i sus a good solicitor and get out to see Dale. Really appreciate your replys. M.

[likewow]

Bicko,

The issue with the company is that when you DO wish to take some of the profits out of the company it's very common to then be taxed a second time.

It's got to be set up just right to avoid this.

That's apart from the legal liability for directors (Directors' indemnity insurance is well worth considering), the ease of suing companies, etc

Cheers,

Aceyducey

Thats correct but you only have to pay the difference between the company tax rate (currently 30%) and your mariginal tax rate. So when you take the money out you might only pay an additional 10-20% tax depending on your personal tax rate. Or something like that. :)