I'm still picking my way through this :-) But I've been told Unit Trusts (as opposed to Discretionary Trusts) still have the rigour of a company structure. There's directors, a central trustholders agreement (units are issued rather than shares) .. and I'm assuming all ASIC rulings/compliance still apply.
2008/12/23 Mike Cannon-Brookes <[email protected]> > > 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 > >> > >> > >> > > > > > > > > > --~--~---------~--~----~------------~-------~--~----~ 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 -~----------~----~----~----~------~----~------~--~---
