It can be a daunting and overwhelming prospect to decide how to set up the structure of your small business.
Not taking the right approach can lead to stumbling blocks in the future. Conversely choosing the right business structure can set you up for success.
If you’re uncertain which avenue to choose, we do recommend having a chat with an advisor here at Glance Consultants, who can discuss with you the advantages and potential pitfalls of using either a trust or a company for your small business. We take the time to listen to your specific needs and learn about what it is you do to offer a bespoke consultation.
In this article, we will outline the key differences between a trust and a company to give you an overview of what they are to make an initial determination about what you believe might be suitable for you.
What is a trust?
Outlined by a trust deed, trusts are basically an agreement between the trustee and the beneficiaries.
You should be aware of two different types of trusts: discretionary trusts and unit trusts.
A discretionary trust allows the trustee to decide what income and capital can be given out to the beneficiaries. Unit trusts give more power to the beneficiaries, where they purchase ‘units’, similar to how shares are purchased in a company. The advantages of a trust include costs, they are both cheaper to establish and receive the 50% CGT discount in certain instances. There is also an appealing nature for some regarding discretionary trusts, where trustees have a significant amount of control.
However, with this power, comes liability. Be aware that the trustee can be held responsible for all debts of the trust, losses are trapped within the trust and there can be complex paperwork to get through to establish one.
What is a company?
A company is controlled by the directors. It is a separate legal entity.
There are advantages to this. You have the ability to sell and transfer shares, there is a capped tax rate of 25% and it is easier to maintain than a trust. But, it is more costly. You aren’t entitled for a 50% general CGT discount like you are for trusts and there are annual ASIC fees to consider.
So, that’s a quick breakdown of what both a company and a trust is.
Do get in touch with us here at Glance Consultants for more support and advice regarding your small business.
