Interesting stuff. There is a middle ground you might consider speaking to you lawyer and accountant to which is registering the venture as a Pty Ltd, and owning your shares in the company via a discretionary trust (and speak to your lawyer about who would be trustee, beneficiary, and appointee, you might be all three). This is only two structures which reduces both upfront and ongoing costs. (~750-1000 to register Pty Ltd and 250-500 for trust). You then have the flexibility of the company structure to trade and sell ownership through. Then ask the lawyer which personal investments are best held in your discretionary trust or held in your name.
P On 23/12/2008, at 7:01 AM, Geoff McQueen wrote: > 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 -~----------~----~----~----~------~----~------~--~---
