First - let me say IANAL. Second - let me say that investors want to see a 'normal' corporate structure. I would personally be worried about buying into a unit trust. Investing, I want to buy normal shares in a normal company. Now I may buy those shares with _my_ unit trust, but that's up to me. Similarly the founders may have their own trusts that own their shares in the company, but I wouldn't do the investment at the trust level. I'd want the normal share controls (board, shareholders agreement, ASIC rules etc) to be in place to protect my shareholding.
Sorry if I misunderstood - just chiming in with my $0.02. m On Tue, Dec 23, 2008 at 9:44 AM, Simon Gilligan <[email protected]> wrote: > Many thanks for that Geoff and Elias, > > Lots of detail! > > From what I can see, a Unit Trust seems the way to go. Especially for a > startup where it's all about the capital gain. If we can minimise taxing > that .. why wouldn't you? If an investor balked at buying into a Unit Trust > rather than a company .. perhaps they aren't the right investor to get > involved? From what I understand, one drawback of a UT though, is earnings > must be paid out each year. With loan accounts the money can actually stay > in the trust, but the tax must be paid at the recipient level .. sort of > making it franked. > > I setup my business as a company, and now am thinking of restructuring. BUT > as Geoff has pointed out, changing structures will cause tax events which if > hefty enough, might stop me from going ahead. I'm still investigating. > > 2008/12/23 Geoff McQueen <[email protected]> >> >> Awesome advice and detail Elias. >> >> >> >> Since we're talking about setting up a company, I thought I'd share with >> you another strategy I've heard of, which can be handy in an increasingly >> litigious world: >> >> 1. register a Pty Ltd company for trading, >> >> 2. register another Pty Ltd company which owns 100% of the trading >> company. This second company holds all IP and other valuable things for your >> "business", and licences them to the trading company; and, >> >> 3. then created a discretionary trust which owns all of the shares >> in the holding company, where you act as the trustee. >> >> >> >> If you want even more power/protection, you can make yet another company >> the trustee of the discretionary trust. >> >> >> >> Most of this is for asset protection reasons since directors keep coming >> under more and more risk these days. In the example, getting sued in the >> trading company wouldn't cause as much damage because the IP and trademarks >> are held by the holding company, which could choose to licence them >> somewhere else if the trading company got into trouble. And, from a tax >> perspective, the discretionary trust could channel dividends or capital gain >> benefits from the holding company to whomever they like, as per Elias' >> suggestion. >> >> >> >> The benefit of having a corporate trustee is that another >> non-natural-person is in control of the trust, providing still more asset >> protection; you don't need to own shares in this entity, just have control >> over it, which is an asset protection thing. >> >> >> >> In terms of selling shares in your business by raising a round or >> something, you would trade in securities in the Holding company – the trust >> effectively remains your own asset holding vehicle, again, providing asset >> protection since you're likely to be the director and facing liability for >> the "risky" (even though they shouldn't be) activities of the trading >> entity, providing directors guarantees and so on and so forth. >> >> >> >> This might sound a bit over the top and complicated, and it probably is, >> but from the advice I've gotten, one of the risks of just going in and >> registering a company and being a director and holding the shares in your >> own name as a natural person is changing the ownership to a discretionary >> trust later triggers (I think) a capital gains tax event, which you >> certainly don't want to have happen – you'll be paying tax on the change in >> the paper value of the business, even if you've just sold it to yourself and >> you're still ploughing all revenues back into growing the company, creating >> quite a headache. However, setting it up right the first time just requires >> a few more bits of documentation: you can even do your tax for the two Pty >> Ltd companies as a consolidated entity if you like, reducing reporting and >> audit/accounting costs, particularly while you're starting up. >> >> >> >> In terms of discretionary vs. unit, I can't imagine having a "company" >> (where the concepts of relative equity through shareholdings) happens with a >> discretionary trust. As the name suggests, the spreading of income – >> equivalent to "dividends" – is at the discretion of the trustee, which would >> make it close to impossible to have more than one shareholder (I believe); a >> unit trust on the other hand has "units" which can be thought of as shares, >> so knowing the difference between the two is important. >> >> >> >> Finally, one thing you might want to consider in all of this is how is >> "looks" or "smells" to people who might want to get involved down the track >> as investors or lenders. Going to a bank with a company structure is likely >> to be more straight forward – particularly in these times with suspicious >> lenders – than going in with a trust – unit or discretionary. This probably >> isn't the case with more sophisticated lenders, but with banks looking for >> anything as a reason to raise your risk profile, I'd be keeping that in the >> back of my mind. >> >> >> >> While often posts on this list end with "make sure you get professional >> advice", this is one area where it really really really is important. >> Changing structures can cause CGT and other tax events, and as Elias >> mentioned, the plans for the future with income from off-shore and >> beneficiaries (or shareholders) also being offshore can make a real >> difference, so a dollar invested now is likely to be well worth it if your >> business ends up kicking on. Contact me off-list if you'd like a few >> recommendations on people to talk to. >> >> >> >> Geoff >> >> >> >> From: [email protected] >> [mailto:[email protected]] On Behalf Of Elias >> Bizannes >> Sent: Tuesday, 23 December 2008 1:33 AM >> To: [email protected] >> Subject: [SiliconBeach] Re: Unit Trust vs Company >> >> >> >> Ah crap - I made a mistake. Even though I mentioned unit trust, I actually >> described the benefits of a discretionary trust. You don't get that >> flexibility with a unit trust, although it still holds that the income >> distributed keeps its character - so if you distribute non-Australian income >> equally to the unit holders, a person who is a non-resident wouldn't pay >> tax. For those that don't know, a unit trust is where people hold units in >> the trust and receive distribution in accordance to how many units they >> have; a discretionary trust allows the trustee more flexibility to determine >> who get what. >> >> What I described about the CGT discount is still correct and the main >> reason why trusts are better over companies. >> >> On Tue, Dec 23, 2008 at 1:12 AM, Elias Bizannes <[email protected]> >> wrote: >> >> Unit trust is taxed at the hands of the receipients, which gives you >> flexibility in shuffling the tax burden - whereas a company is simply taxing >> income equally and distributed to shareholders without consideration for >> their individual tax situation. So for example, you could distribute >> overseas income to your non-Australian business partner and avoid tax >> legally (as it's a non-resident deriving non Australian sourced income; >> under a company this would be taxed as it's a resident for tax purposes and >> therefore the income is assessable) and you could distribute up to 6k to >> several people in your family who don't work as that will be tax free due to >> the personal threshold (again, under a company, that'd receive the post >> taxed dividends). In terms of capital gain, this is included in an >> individuals personal tax situation (CGT does not occur at a partner level >> for example; it occurs at the marginal rate of tax at the individual level). >> So going on the above example, you can distribute overseas gains to >> non-Aussie residents to avoid paying tax, etc. >> >> Also, with CGT on individuals & trusts they get a better discount (50%) >> than companies when calculating the gain (companies don't get the discount). >> There's another method called indexation when determinining what the capital >> gain is, but this only applies to assets pre 1999, and which is equal across >> the board - so no difference between trusts and companies under that method. >> >> I wouldn't point this out for startups as it's more a case for longer term >> businesses, but for completeness of knowledge, small businesses get a series >> of discounts on CGT. >> http://www.ato.gov.au/busineses/pathway.asp?pc=001/003/089/001/007&mnu=&st=&cy=1&mfp= >> >> I hope that helps. >> >> Elias Bizannes >> Mobile: +61 412 338 508 >> E-mail: [email protected] >> DataPortability.Org - SiliconBeachAustralia.Org >> >> Chat: Skype: elias.bizannes >> >> >> >> On Tue, Dec 23, 2008 at 12:26 AM, Simon Gilligan <[email protected]> >> wrote: >> >> Hi all, if you were setting up a new company tomorrow, would you >> setup as a unit trust or company? Recent advice I've had is that a >> unit trust is a better vehicle with better tax control over capital >> gain. Is there any experience out there regarding this? >> >> >> >> -- >> Elias Bizannes >> http://liako.biz >> >> >> -- >> Elias Bizannes >> http://liako.biz >> >> >> > > > > -- > Simon Gilligan > APPLEBOX > e. [email protected] > p. 9486 7342 > w. http://applebox.com.au > > > > -- ATLASSIAN - http://www.atlassian.com --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Silicon Beach Australia" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/silicon-beach-australia?hl=en -~----------~----~----~----~------~----~------~--~---
