Understanding Business Structures: Company vs. Trust
Before deciding which structure is right for your business, it’s essential to understand the key differences between a company and a trust, as each has its own advantages and limitations.
Company Structure
A company is a separate legal entity, which means it can own property, incur debts, and be sued in its own right. Many Australian businesses opt for this structure due to its flexibility and limited liability protection. Here are some key benefits:
- Limited Liability: Shareholders’ personal assets are protected from the company’s liabilities, meaning they can only lose the amount they invested.
- Tax Benefits: Companies enjoy a flat corporate tax rate, which can be lower than individual tax rates. For small businesses with a turnover of less than $50 million, the tax rate is currently 25%.
- Growth Opportunities: Companies can raise capital by issuing shares, making it easier to attract investors or expand the business.
- Succession Planning: A company can continue to operate even after the original owners retire or pass away, ensuring continuity.
Trust Structure
- Asset Protection: A trust can provide a layer of protection from creditors, helping to shield business and personal assets.
- Tax Flexibility: Income generated by the trust can be distributed among beneficiaries in a tax-efficient way. This flexibility allows trustees to allocate income to beneficiaries in lower tax brackets, potentially reducing overall tax liability.
- Estate Planning: Trusts are a useful tool for passing assets to future generations without triggering capital gains tax or other liabilities upon death.
