By Maria Loni

When navigating the complex landscape of business structures in New South Wales, Australia, the decision between establishing a Trust or a Company is pivotal. Understanding the "Trust v Company" dichotomy is essential for entrepreneurs and investors alike. This blog post will delve into the critical differences between these two entities, guided by New South Wales legislation. We will discuss 8 differences that distinguish Trusts from Companies, providing clarity for those looking to make an informed decision in Australia's dynamic business environment. Whether you're starting a new venture or restructuring an existing one, this comparison will be an invaluable resource.

Below are 8 distinctions between Trust and Company!

When it comes to structuring your business or managing your investments in New South Wales (NSW), Australia, two common entities are often considered: Trusts and Companies. Each has its unique features, benefits, and obligations under the Australian legislation. In this article, we will explore the 8 key differences between a Trust and a Company in NSW, helping you to make an informed decision for your financial and legal needs.

1. Legal Structure

A Trust is an arrangement where a trustee holds property or assets for the benefit of the beneficiaries. In contrast, a Company is a separate legal entity that owns its assets and is responsible for its liabilities. Understanding the legal structure is crucial as it affects the level of control, liability, and the way operations are managed.

2. Establishment and Maintenance

Setting up a Trust in NSW requires a formal trust deed, outlining how the trust operates, and must comply with state legislation. Companies are registered with the Australian Securities and Investments Commission (ASIC) and are subject to the Corporations Act 2001 (Cth). The ongoing maintenance of a Trust involves adhering to the trust deed and trust law, whereas a Company must meet annual reporting, compliance, and administrative requirements set by ASIC.

3. Taxation

Taxation is a significant aspect where Trust v Company considerations diverge. Trusts typically distribute income to beneficiaries who are then taxed at their personal income tax rates. Companies are taxed as separate entities at the corporate tax rate, which can offer tax planning advantages or disadvantages depending on the individual circumstances.

4. Liability

In a Trust, the trustee may be personally liable for the debts of the trust, although this can often be limited with a corporate trustee. Companies provide limited liability, which means that shareholders are only liable for the company's debts to the extent of their share capital.

5. Succession Planning

Trusts are often used for estate planning as they can provide a clear succession of assets without the need for probate. Conversely, Companies can continue indefinitely, but the transfer of ownership through shares can be more complex and may trigger capital gains tax events.

6. Control

Control over a Trust is vested in the trustee, who must act in the best interest of the beneficiaries. In a Company, directors manage the company, and shareholders own it, which can lead to a separation of ownership and control, sometimes resulting in different objectives.

7. Profit Distribution

Trusts must distribute their income to beneficiaries each financial year to avoid being taxed at the highest marginal tax rate. Companies have the discretion to retain profits within the company or distribute them as dividends to shareholders, which are then taxed at the recipient's marginal rate.

8. Compliance and Regulatory Requirements

Trusts are primarily regulated by state legislation and the trust deed itself, whereas Companies are regulated by federal legislation and subject to more stringent compliance and reporting requirements. This can affect the administrative burden and cost of operating the entity.

Conclusion:

Whether you opt for a Trust or a Company in NSW, Australia, depends on your specific circumstances, including your business goals, tax considerations, and appetite for risk. It's essential to seek professional advice to understand the intricacies of the legislation and how it applies to your situation. By grasping the 8 differences between a Trust and a Company, you can make a strategic choice that aligns with your long-term objectives and ensures compliance with Australian laws.

REMEMBER, the right structure for you can enhance your asset protection, provide tax efficiencies, and ensure the smooth operation of your business or investment portfolio.

Here at Purpose Lawyers, we offer a Complimentary 15-minute advice session.

Please contact us on 1300 806 106 or email us at info@purposelawyers.com.au to arrange your complimentary advice session today!