What is a Trust in a business structure?

A trust is not a separate legal entity. It simply holds property in trust for the beneficiaries.  It is a legal structure used to maximize the financial advantages of being in business, such as distribution of income, taxation and protection from creditors.

The trustee must administer the trust by a trust deed, which sets up the trust and determines the rules by which it operates.

The trust structure offers advantages to a family business, which cannot be gained by other three business structure discussed.  At the same time, many of the advantages of a company structure can be maintained by having a company act as trustee. Members of a family business govern the trust, as both directors of the trustee company and beneficiaries of the trust. Income produced by the trustee company can be allocated to the directors/beneficiaries during the financial year with the final allocation made at the end of the financial year.

However, trusts are complex structure and their establishment requires professional advice.  They are also subject to close scrutiny from the Tax Office.

Your decision regarding the most appropriate business structure for your venture should be made after consultation with a professional or business adviser, such as your accountant, solicitor, or local small business organization.  Whichever structure is chosen, it is unlikely that the structure will be final.  Not only will your business grow, but your financial and taxation situations will change, and legislation and tax developments nay modify the characteristics and relative advantages of the various business structure. For this reason, your business structure should be regularly reviewed.

Below is an overview of the key features of the three main business structures discussed previously.  Trusts have been omitted due to their specialized and complex nature.


Here are  other business structures we discussed the past few weeks:

• Sole Trader
• Partnership
• Company

Want to learn more about your business structure for your art & Design?

It’s as simple as 1... 2... 3...
 

1: 1. Like  ArtSHINE's Facebook page

2: Send an e--mail Quantum Compass: partnership@QuantumCompass.com.au and receive your PDF " The Advantages and Disadvantages of being a “Trust” 

3: Contact Vinh for a no cost, no obligation coaching session: http://www.surveymonkey.com/s/ArtShineDiscovery

What is a Company Structure?

The company structure is very different from both the sole trader and partnership structures. A company is formed when a group of individual, or firms, combine as shareholders and incorporate under the provisions of the Company Act.

Companies can be either proprietary limited (PTY LTD) companies or public companies.  The difference is that proprietary limited companies cannot offer their shares to the public. As do public companies.  For this reason, they are often called private companies.

The company is a separate legal entity, quite apart from the individuals (shareholders) who own or operate it.  The company can:

•      Own property
•      Enter into contracts
•      Lend and borrow money
•     Operate its own bank account
•     Sue and be sued
•     Be bought and sold

The liability of the company is limited.  That is, shareholders risk only their respective contribution of capital, and not their personal assets.  The separateness of the company is also recognized for tax purposes.

When a company is formed it must comply with required legalities. A written contribution must be submitted, including the memorandum of association, which states the company’s name, address, objectives and capital; and the articles of association, which details the company’s internal rules of operation.  The company must also be registered with the Australian Securities and Investments Commission and will receive an Australian Company Number (ACN), with must appear on the stationery.

There are two main methods of forming a company.

I.           Starting from scratch

This involves:

·    Selecting and registering a business name

·    Writing a suitable memorandum and articles of association

·    Lodging all  documentation with the Australian Securities and Investments Commission (ASIC)

·    Obtaining a certificate of incorporation and Australian Company Number (ACN)

II.        Purchasing a shelf company

Shelf companies have been formed by solicitors or accountants, and have a ready-made  structure.  They are literally ‘put on the shelf’, waiting for someone to buy them.

Self companies generally require a change of name, or registration of a business name, together with amendments to the memorandum and articles of association, before lodging with Australian Securities and Investments Commission.

Want to learn more about your business structure for your art & Design?

It’s as simple as 1... 2... 3...
 

1: Like  ArtSHINE's Facebook page

2: Send an e--mail Quantum Compass: partnership@QuantumCompass.com.au and receive your PDF " The Advantages and Disadvantages of being a “Company” 

3: Contact Vinh for a no cost, no obligation coaching session: http://www.surveymonkey.com/s/ArtShineDiscovery

What is Partnership ?

The Partnership structure is designed for businesses which have more than one owner.  The various State Partnership Acts define ‘Partnership’ as “the relationship which subsists between persons carrying on a business in common with a view to profit”.

Each state in Australia has it own Partnership Act and most states require written evidence of a partnership if it is expected to continue for more than 12 months.

The written agreement defining partners’ relations, and specifying how profits and losses will be divided, generally includes the following provisions:

·    Names and addresses of the Partners

·    Name of the firm

·    Nature of the partnership business

·    Duration of the partnership

·    Initial capital contributed by each partners

·    Distribution of profits and losses to partners

·    Procedures for partner salaries/ personal drawings

·    Partners’ roles within the business

·    Record keeping and accounting procedures

·    Bank details

·    Extent of each partner’s authority

·    Effects of death, bankruptcy, expulsion, incapacity or   retirement of a partner

·    Disputes resolution processes

·    Procedures for the dissolution of the partnership

Although a partnership is often thought of as a unit, separate and apart from the individuals who are the partners, and is treated that way for accounting purposes, the law does not regard the partnership as a legal entity. Legally it is simply a number of individuals.  All partners are jointly and individually liable for all debts and obligations of the partnership.  Liability is not limited to an individual’s share of the debts and obligations as determined by the partnership percentage. 

Therefore, partnerships offer no legal protection and are normally limited for use in close relationships.

Income, losses and wealth are distributed to partners according to their partnership percentage, and each partner’s share of the taxable income of the partnership is taxed at their respective rates of income tax.  While partnerships must lodge tax returns, they do not pay tax in their own right.

Want to learn more about your business structure for your art & Design?

It’s as simple as 1... 2... 3...
 

1: Like  ArtSHINE's Facebook page

 

2: Send an e--mail Quantum Compass: partnership@QuantumCompass.com.au and receive your PDF " The Advantages and Disadvantages of being a “Partnership” 

 

3: Contact Vinh for a no cost, no obligation coaching session: http://www.surveymonkey.com/s/ArtShineDiscovery

Older Posts:

• What is your business' legal structure? Which on would be the right one for you?  
• What is Sole Proprietor or Sole Trader?

Sole Proprietor, or Sole Trader

A Sole Trader is a person who trades as an individual, without the use of a company structure or partners.  The proprietor is the sole owner of the business and has sole control over it. Therefore, the individual bears the full responsibility for the actions of the business.  This is the simplest form of business ownership and can be started with little capital outlay.

The sole trader can trade under his or her name, or register a business name. However, registration of a business name does not make the sole trader a separate legal entity. The business belongs to the sole trader who personally responsible by law. Registration under a business name has no legal implications other than to allow that individual to use and trade under that name.

A distinguishing feature of the sole trader is the nature of any legal liability.  While the sole trader retains the profits from the venture, the liabilities with regard to claims from creditors extend to personal assets. No distinction is made between business assets and personal assets

Want to learn more about your business structure for your art & Design?

It’s as simple as 1... 2... 3...
 

1: Like  ArtSHINE's Facebook page

 

2: Send an e--mail Quantum Compass: Soletrade@QuantumCompass.com.au and receive your PDF " The Advantages and Disadvantages of being a “Sole Trader” 

 

3: Contact Vinh for a no cost, no obligation coaching session: http://www.surveymonkey.com/s/ArtShineDiscovery

What is your business' legal structure? Which One Would Be The Right One For You?

Your business is a legal structure, therefore it is important that you understand the business structure that you select for your business. The most common types of business structures available in Australia include:

1.   Sole Proprietor or Sole Trader

2.   Partnerships

3.   Companies

4.   Trusts

Your choice of most appropriate legal form of organisation for your business will depend upon factors like:

·    The size of the business

·    The number of people involved

·    The type of business

·    The cost and difficulty of establishment

·    Taxation considerations-maximum economic rewards

·    Financial considerations, both present and future

·    Superannuation considerations

·    Management control and independence

·    Acceptability of government interference

·    The need for additional skills

·    Exposure to risk / liability of individuals

·    Your own personal preference

Next week we will  discuss about Sole Proprietor or Sole Trader. So stay tuned for next Friday.