Setting up a Company

A company is an independent legal entity. All companies need to be registered through ASIC (the Australian Securities and Investments Commission).

You will run the business as a director and own the business as a shareholder.

Advantages

• Your liability for the debts of the business is limited.
• Your limited liability can make it easier to attract investment.
• You can own and operate as the sole shareholder and director.
• You have no personal responsibility for debts unless the debts are negligent or fraudulent.
• A company can own property.
• You can be employed by the company
• Taxation rates can be more favourable
• You’ll have access to a wider capital and skills base.

Disadvantages

• Large initial establishment fee.
• Complex establishment requirements.
• Strict regulations.
• Attract higher compliance costs than other business structures.
• Your business will be subject to company tax.
• Your financial affairs are public.

Setting up a Trust

A trust is a structure where a trustee (typically an individual or company) operates a business on behalf of the beneficiaries of the trust.

As a general rule, trusts are a more tax effective structure as a holding entity for investment and commercial real estate and other fixed assets. Individuals are provided a 50% exemption from CGT. This exemption will apply to a discretionary trust where the potential beneficiaries are all individuals (not companies).

Advantages

• Often used for tax minimisation.
• Limited liability for each beneficiary (Asset Protection).
• Tax – Income splitting
• Can assist with transfer of assets to the next generation.

Disadvantages

• The structure is complex
• The trust can be expensive to establish and maintain
• Difficult to make changes to a trust or dissolve it.
• The powers of trustees are restricted by the trust deed.

If you need assistance with a company or trust setup, contact us on (02) 9897 2426 and speak with one of our tax specialists.