Companies, Trusts & Partnerships

Choosing a Business Structure

Choosing an appropriate legal structure is an important decision when establishing, purchasing, operating or restructuring a business.

Companies, trusts and partnerships have different legal characteristics, responsibilities and practical consequences. The appropriate structure will depend upon the nature of the business, the people involved, asset ownership, risk, succession planning and taxation considerations.

Russell Kelly & Associates can advise on the legal aspects of business structures and work with your accountant or taxation adviser where appropriate.

Companies

A registered company is a separate legal entity from its shareholders and directors. It can own property, enter into contracts, incur debts, sue and be sued in its own name.

For a company limited by shares, shareholders are generally not personally responsible for company debts merely because they own shares. Their liability as shareholders is generally limited to any amount unpaid on their shares.

However, operating through a company does not remove all potential personal liability. Directors and other persons can have personal duties and liabilities in particular circumstances. Learn more about directors’ duties and responsibilities.

Companies are subject to ongoing legal and regulatory requirements, and the rights and responsibilities of shareholders and directors should be considered when establishing or changing a company structure.

Trusts

A trust is a legal relationship under which a trustee holds and manages property for the benefit of beneficiaries in accordance with the terms of the trust.

The trustee may be an individual or a company. The trustee is responsible for administering the trust and dealing with trust property in accordance with the trust deed and applicable law.

Trust structures can be used in business, investment, property ownership and succession planning. The suitability of a trust depends upon the particular circumstances and should be considered together with appropriate taxation and accounting advice.

Unit Trusts

In a unit trust, interests in the trust fund are divided into units. Unit holders hold units that represent their interests in the trust in accordance with the terms of the trust deed.

Unit trusts may be used where parties wish to hold defined interests in a business, investment or property arrangement.

The rights of unit holders, powers of the trustee and procedures for issuing, transferring or redeeming units are generally governed by the trust deed.

Discretionary Trusts

In a discretionary trust, the trustee generally has discretion about how income or capital is distributed among beneficiaries, subject to the terms of the trust deed.

Discretionary trusts are commonly used in family, investment and business arrangements, but their legal, taxation and administrative consequences should be considered carefully before establishing or changing the structure.

Individual and Corporate Trustees

A trustee is responsible for holding and administering trust property and owes legal duties in carrying out that role.

A trustee can be an individual or a company. Using a corporate trustee can provide advantages in some circumstances, including continuity and separation between personal and trust arrangements, but it also involves additional establishment and administration requirements.

The appropriate trustee structure depends upon the circumstances of the trust and the people involved.

Changing a Trust Deed

Trust deeds sometimes need to be amended to reflect changed circumstances or requirements.

Any proposed variation should be considered carefully. The power to amend a trust deed depends upon the terms of the deed, and significant changes can have legal, taxation, duty and other consequences.

Legal and taxation advice should therefore be obtained before making material changes to an existing trust deed.

Partnerships

A partnership is a business structure in which two or more people or entities carry on business together.

The relationship between partners can involve important issues including ownership, management and decision-making, contributions of capital, sharing of profits and losses, admission or retirement of partners and the resolution of disputes.

A properly prepared partnership agreement can document how the partnership is to operate and what is to happen if circumstances change.

Which Business Structure Is Appropriate?

There is no single structure that is appropriate for every business.

The decision may involve considerations such as:

• the nature and size of the business;
• the number of owners or participants;
• management and control;
• asset ownership;
• commercial and financial risk;
• future investment or ownership changes;
• succession planning; and
• taxation and accounting considerations.

Legal advice should be considered together with appropriate accounting and taxation advice before establishing or materially restructuring a business.

Business Structure Advice

Russell Kelly & Associates can advise on companies, trusts, partnerships and related business arrangements, including the preparation and review of relevant legal documentation.

Learn more about our Business and Commercial Law services.

Learn more about Franchise Law.

Speak to Russell Kelly & Associates

If you are establishing, purchasing or restructuring a business, or require advice about an existing company, trust or partnership, contact Russell Kelly & Associates to discuss your circumstances.

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This information is general in nature and does not constitute legal advice. Legal advice should be obtained about your particular circumstances.