Starting a Business
Starting a Business: Company vs. Unit Trust
Starting a business has more legal aspects attached to it than you would expect. The type of business structure you want to adopt is one such consideration. It helps to be aware of, and informed about, different business structures. This way, you can choose a business structure that fits you and your business best. Here, we compare a company and a unit trust.
Understanding a Company Set-Up
As a business structure, a company stands on its own. It is treated as an individual entity under law. A business structure that wishes to operate as a company must adhere to the Corporations Act 2001.
Company establishment and operational costs are usually high. As a company, you need to have an Australian Business Number (ABN), company name; and a separate bank account. You need to register your company too.
Directors and shareholders are the key people in a company set-up. Directors are responsible for the day-to-day business operations. Shareholders have ownership of the company. Directors are the major decision makers, but shareholders too have a say in certain aspects, as stipulated by the Corporations Act.
Limited liability is one of the popular benefits associated with a company business structure. Liability of shareholders is limited to the amount of debt on their share. If the share of a shareholder has no debts, he/she has no onus of liability. Directors are not usually at risk of liability unless they make a personal decision to operate the business despite bankruptcy.
Taxation structure is individualistic to a company. A company does not enjoy any tax-free threshold. It needs to file a tax return every year with the Australian Taxation Office (ATO). All the income that a company makes is generally used to fund further business growth.
Understanding a Unit Trust Arrangement
A unit trust is a legal arrangement in which beneficiaries for whom the Trust is set up, become Unit Holders. The Trust Property is divided among these Unit Holders, with each such division referred to as a “unit”.
A Settler establishes a Unit Trust. The terms and conditions that the Unit Trust and Trustee must abide by, are listed in a document referred to as the Unit Trust deed. This Deed bears the signature of the Settlor and the Trustee. The Trustee can be a single person, multiple individuals, or even a company.
Any liabilities in the form of debt or other, arising from the operations of the Unit Trust, must be borne by the Trustee. A Trustee is entitled to use the trust fund to meet liabilities. But, if trust funds are insufficient to pay off the debts, the Trustee’s personal property will be used. If the Trustee is a company, there is only limited liability.
Unit Holders have the right to sell or transfer respective units in accordance to the terms stipulated in the Unit Trust Deed.
The law does not treat Unit Trust as a separate entity for tax purposes. Yet, the Trustee is legally obligated to file an annual tax return. In some cases, the Trust may be assessed and the Trustee, in such cases, needs to pay tax.
The choice of a business structure depends on how you want to run your business and your vision. Talk to business and legal experts so you get started in the right path.
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