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:
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