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As a business owner, it can be confusing to understand the different structures that exist around holding shares.
Within startups, a common business structure involves registering a company and having the business owners individually own shares in their own name.
However, another savvy strategy is to hold shares through a trust. Holding shares through a trust can help protect your shares, as well as affording you a range of financial benefits in the long run.
If this is a business structure you’re interested in exploring, you’ll have to set up a trust. In this article, we’ll guide you through the steps involved in setting up a trust and explain how this structure can benefit your business.Â
What Is A Trust?
Put simply, a trust is a relationship wherein a trustee (who may be a company or a person) holds property for the benefit of another person or entity (also known as the beneficiary, who can be a company, a person or another trustee).
Trusts are set up by a Trust Deed, under which the Trustee has certain obligations to act in the interest of the beneficiary. You can find more information about trusts here.
This Sounds Complex. Why Should I Bother Holding My Shares Through A Trust?
Setting up a trust can be a little complicated and you may not see the benefits straight away.
However, below are some reasons you might want to consider holding shares through a trust.
It’s good for asset protection
If your shares are held through a trust and your company is sued, your assets may not be accessible to creditors.
You can think of trusts as a way to protect yourself by creating distance between the individual, the company and its shares.
It can be tax effective
Holding shares through a trust instead of a company can also make you eligible for the 50% Capital Gains Tax discount.
There are many types of trusts — you can find out more about these on the ATO’s website. If you use a discretionary trust, for example, you can save tax by selecting who you pay income to.
How Do I Hold My Shares Through A Trust?
The way in which you hold shares through a trust varies depending on whether you’re transferring your shares to a trust structure, or whether you want to hold your shares in a trust from the very beginning.
Keep in mind that it’s easier to set trusts up from the beginning, rather than transferring them later.
If you already own the shares and want to move them to a trust structure
First up, it’s important to check you can transfer your shares. Check, for example, your Shareholder’s Agreement, as these agreements often contain clauses that prohibit shareholders from transferring shares.Â
It’s also important that you consult the company’s other shareholders, as there will be a process under which you’ll need to update ASIC and their internal members, and ASIC will give you a new shareholder’s certificate.Â
If you want to hold your shares in a trust from the beginning
If you want to hold your shares in a trust from the outset, you will need to tell your company that you want to hold your shares in a trust. You’ll also have to give them the details of the trust, so they can update the relevant authorities.
To ensure you’re following the appropriate procedures, we recommend speaking with an accountant who specialises in tax-related advice. If you need help with this, get in touch with POP Tax.
To Sum Up
As you can see, holding shares through a trust does require work and certain expenses to ensure you comply with tax law. However, the long term benefits of tax concessions and asset protection do make the process a worthwhile one.
If you want to know more about setting up a trust, changing your shareholder’s agreement or what business structure is best for you, you can reach us on 1800 730 617 or email us at team@sprintlaw.com.au.
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