Should You Run Your Business Through A Trust In Australia?

Thinking about running your business through a trust? It’s a common question for Australian small business owners, especially when you’re weighing up asset protection, tax flexibility and how you want profits to flow to family members or co-founders.

Trusts can be a smart way to structure a business. But like any structure, they have rules, costs and obligations you need to understand before you jump in.

In this guide, we’ll walk through what a trust is in plain English, how running a business through a trust works, key pros and cons versus a company, setup steps, ongoing compliance, and the core legal documents you’ll want in place to protect your venture.

What Does It Mean To Run A Business Through A Trust?

A trust is a legal relationship where a trustee holds and manages assets or carries on a business for the benefit of others (the beneficiaries). The trustee can be an individual or, commonly, a company (often called a “corporate trustee”).

When you “run a business through a trust,” you’re saying the trustee is the legal party that enters into contracts, hires staff, and operates the business, and the beneficiaries receive the trust’s profits according to the terms in the trust deed.

Common Types Of Trusts For Small Businesses

• Discretionary (Family) Trust: The trustee has discretion to distribute income and capital among a class of beneficiaries (often family members). Popular for family-run businesses and flexibility in distributions.
• Unit Trust: Beneficiaries hold fixed “units” similar to shares, and income is distributed in proportion to units. Often used where unrelated business partners are involved.

Key Players In A Trust

• Settlor: The person who “settles” (creates) the trust by making a nominal initial contribution and signing the trust deed. The settlor usually has no ongoing role.
• Trustee: The legal decision-maker that runs the business and owes duties to beneficiaries. Many business owners use a company as the trustee for extra asset protection.
• Beneficiaries: The people or entities who are entitled to income and/or capital from the trust, as set out in the deed.

Trust Vs Company: Which Should You Choose?

There’s no one-size-fits-all answer. Your choice depends on your risk profile, growth plans, who will benefit from profits, and advice from your accountant and lawyer. Here’s a practical comparison to help you think it through.

Potential Advantages Of Using A Trust

• Asset Protection: If you use a corporate trustee, business risks are typically separated from personal assets.
• Distribution Flexibility: Discretionary trusts can distribute income to different beneficiaries each year (subject to tax rules), which can be helpful for family groups.
• Estate & Succession Planning: Trusts can support longer-term planning across generations if structured well.

Potential Disadvantages (And Things To Watch)

• Complexity And Cost: Trusts require a carefully drafted trust deed, ongoing record-keeping and professional advice, which adds cost.
• Banking And Financing: Some lenders prefer companies; you may need guarantees and extra paperwork.
• Rigidity In Some Areas: Unit trusts fix distributions by units, and trust deeds can limit what the trustee can do without amendment.

When A Company Might Be Simpler

Companies offer limited liability, straightforward equity raising, and a clean path for investors. If your growth plans include venture capital, employee equity or selling shares down the track, a company can be easier to manage for those goals.

That said, many businesses use a hybrid: a trust that owns the operating assets, with a Company Set Up as the trustee. Others use a trust to hold shares in a trading company. Each approach has different legal and tax outcomes, so get tailored advice before you decide.

How Do You Set Up A Trust To Run Your Business?

Setting up a trust is more than just buying a deed off the internet. It’s important to get the structure right for your goals from day one.

1) Map Your Structure And Goals

Start by clarifying who will be involved, how you expect profits to be distributed, and where the risks sit. Consider whether your trustee should be a company, who your beneficiaries are, and how you’ll handle succession (what happens if someone leaves or passes away).

2) Draft And Execute The Trust Deed

The trust deed is your rule book. It sets out the trustee’s powers, who the beneficiaries are, distribution mechanics and decision-making processes. The deed must be properly executed and, in some states, stamped. A well-prepared deed can save significant headaches later.

3) Appoint The Trustee

Decide whether the trustee will be an individual or a company. A corporate trustee is common for asset protection and continuity. If you go down that path, set up the company and its governing documents at the same time as your trust.

4) Get Your Identifiers And Registrations

Trusts need their own identifiers to trade legally. This typically includes an ABN, TFN and, if applicable, GST registration. Make sure you obtain the right numbers for the trust and, if you have a corporate trustee, for the company as well. This is part of the core trust requirements when you’re ready to operate.

5) Open Bank Accounts And Set Up Accounting

Open a bank account in the name of the trustee as trustee for the trust (often written “as trustee for ”). Put bookkeeping systems in place early, including how distributions will be recorded and documented each year.

6) Formalise Agreements Between Stakeholders

In a unit trust, consider an Unitholders Agreement to govern decision-making, exits and unit transfers. If your trust holds shares in a company, it’s wise to document holding shares through a trust properly and, where relevant, align this with a company Shareholders Agreement.

What Ongoing Obligations And Risks Should You Plan For?

Operating through a trust doesn’t remove your compliance duties. The trustee must run the business prudently and keep the trust on the right side of the law.

Trust Law And Fiduciary Duties

Trustees owe duties to act in the best interests of beneficiaries and in line with the trust deed. Keep minutes of key decisions, avoid mixing trust assets with personal assets, and follow the deed when making distributions.

Tax And Accounting (Work With Your Accountant)

• Annual Distributions: Many trusts need resolutions in place by a set date each year to distribute income according to the deed.
• Registrations: Check GST registration, PAYG withholding if employing staff, and superannuation obligations.
• Record-Keeping: Maintain accurate records for income, expenses, loans and distributions. Your accountant can guide the specifics.

Because every business is different, get tax advice up front so your trust is administered correctly from day one.

Commercial And Legal Compliance

• Consumer Law: If you sell goods or services, you must comply with the Australian Consumer Law (ACL) on matters like refunds, guarantees and fair advertising.
• Employment Law: Hiring staff triggers Fair Work obligations, awards, workplace health and safety, and proper contracts and policies.
• Privacy: Collecting customer data? You’ll likely need a clear Privacy Policy and practices compliant with the Privacy Act.
• IP Protection: Protect your brand name and logo early with a registered trade mark to prevent copycats.
• Licences & Permits: Industry-specific licences (e.g. food, health, building) and council approvals still apply, regardless of your structure.

Governance Of The Corporate Trustee

If you use a company as trustee, remember you’re managing two layers: the trust and the company. Keep ASIC details up to date, maintain director and shareholder records, and ensure the company follows its constitution or replaceable rules.

What Legal Documents Will Your Trust-Run Business Need?

Running a business through a trust doesn’t change the fact that you need strong contracts and clear policies. Here are the essentials most businesses should consider.

• Customer Contract: Sets out scope, pricing, payment terms, refunds, liability and termination when you supply goods or services. For online businesses, this may be your website or app terms.
• Privacy Policy: Explains how you collect, use and store personal information. Required if you meet the Privacy Act thresholds and strongly recommended for most customer-facing businesses.
• Employment Contract: Documents duties, hours, pay, confidentiality and IP ownership for each employee, aligned with applicable awards and Fair Work requirements.
• Supplier Or Contractor Agreements: Lock in price, deliverables, IP ownership, confidentiality and service levels with key suppliers and freelancers.
• Website Terms Of Use: Governs how visitors use your site and helps manage risks like misuse or IP infringement.
• IP Assignment And Licensing: If contractors or related entities create IP for your business, make sure you own or have the right to use it.
• Trust Governance Documents: Keep your trust deed accessible, and for unit trusts, consider an Unitholders Agreement to manage decision-making and exits.

These documents should reflect that the contracting party is the trustee “as trustee for” the trust (and not a director or beneficiary personally). Getting the party names right is a small detail that makes a big legal difference.

Practical Tips When Operating Through A Trust

• Use Clear Naming: On invoices and contracts, show the trustee’s legal name and the trust name (e.g. “ABC Pty Ltd as trustee for XYZ Trust”).
• Keep Finances Separate: Don’t mix personal and trust funds. Use dedicated bank accounts and keep clean records.
• Minute Decisions: Record trustee resolutions, distributions and major business decisions. Good governance protects you if something goes wrong.
• Review The Deed Annually: Check distribution clauses and powers before tax time so you’re ready to make effective resolutions.
• Plan Succession Early: If a key person leaves or a beneficiary changes, be ready. The trust deed should guide appointments and replacements.

Key Takeaways

• Running a business through a trust can offer asset protection and flexible profit distributions, but it adds complexity and ongoing obligations.
• Choose your structure deliberately: trust, company or a hybrid with a corporate trustee - and align it with your goals and risk profile.
• Set up the trust properly from day one with a robust deed, the right registrations, and clear governance between the trustee and beneficiaries.
• Trust or not, you still need strong contracts and core policies - think Customer Contract, Privacy Policy, employment agreements and supplier terms.
• Note time-critical steps like annual distribution resolutions, ASIC updates for a corporate trustee, and IP protection for your brand.
• Tailored legal and accounting advice early will help you avoid costly mistakes and keep your trust-compliant as you grow.

If you’d like a consultation about running your business through a trust, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.