Frequently Asked Questions
Why would I use ABNAustralia.com.au?We provide a comprehensive range of business registration services including company formations, trust and SMSF deed establishments, and related corporate secretarial services. Simply put, we work with accounting and other professional firms who understand the value of partnering with an informed business registration and legal document provider.
- We provide fast and reliable legal document and registration services with amazing customer support, driven by our attention to detail.
- Our 40 year longevity in the industry reflects our continued reputation for high quality documents and customer service. Our focus is on building trust and relationships with our clients and helping them succeed in front of their clients.
- Our staff manually review every order, making sure typos, spelling mistakes and other simple but common errors are spotted and fixed sooner rather than later.
- We procure commercially sound and compliant legal documentation that is fit for purpose and cost effective. We ensure your existing company, trust, or SMSF documentation remains compliant with ASIC and other legislative requirements.
- Unlike our larger competitors, every legal document ordered online is prepared and reviewed by an experienced lawyer – providing you unparalleled legal assurance and confidence.
- We save your firm time and money by providing operational efficiencies through our streamlined systems and experienced staff members.
- We provide a comprehensive range of ancillary and secretarial services ensuring you're supported whatever your client needs are.
Are the documents legal?Every order you place through our website is individually prepared and reviewed by our experienced legal partners. Not only do our lawyers ensure your documentation complies with the appropriate legislative and tax office requirements, they also ensure documents are structured and maintained in line with the latest industry innovations.
Significantly, our legal partners assume the risk and responsibility for the document its signs off – not you. This greatly mitigates any action that can be taken against you in relation to the documentation that you provide your clients (for example in circumstances where the deed is deemed as non-compliant with the law).
Given the level of assurance offered by our documents, our service is one of the most affordable available on the market.
What methods can I use to order a document or company registration?We encourage customers to use our online forms where possible. However, some clients prefer to order directly via email, using our pdf order forms, or even over the phone. Please contact us on email@example.com or call 1300 226 226 to discuss your needs.
How do you pay for the documents?
We offer a flexible range of payment options, including via credit card and bank transfer. Credit cards accepted include Visa and Mastercard. All orders received will be sent a Tax Invoice.
How are the documents delivered to me?
We include as standard electronic delivery of your documents in PDF format. For an additional cost, we also offer clients the choice to have their documents printed, bound, and delivered to their door using a premium leather-feel document folder which is sure to make a strong impression on your end clients. Simply select this option when placing your order.
What file formats does ABNAustralia.com.au send the documents in?
We send you the documents in a print-ready Portable Document Format file, otherwise known as a 'pdf' file. To open and print the document, you'll need Adobe Acrobat, or an equivalent PDF reader.
I have noticed an error in the document I ordered?
If you notice an error (eg spelling mistake, typo, wrong associate) caused by ABNAustralia.com.au we will update your document and pay for any resultant costs free of charge. If the error is caused by the information you have provided, we will in all cases do our best to correct the mistake as soon as possible however there may be a fee depending on the delay and nature of the corrections required. For company registrations, ASIC often allows a very short grace period to make changes after registration, however, this may not always be available and we can therefore not guarantee that there won't be additional ASIC fees payable.
Our experienced staff members individually review all orders submitted and are trained to look out for common mistakes, spelling errors, typos and inconsistent information - saving you costs and headaches down the line.
Who do you contact about legal questions?
If you have any questions in relation to our documents, please feel free to contact us directly at firstname.lastname@example.org or call us on 1300 226 226. In the event that further legal advice is sought we can connect you directly through to our legal partners, where you may be charged according to your needs.
What do you do if ASIC rejects your application to register a company?
If ASIC rejects your application to register a company, then it's easy enough to fix things and it is free — there is no charge from us, and no charge from ASIC. Below, we have set out some common reasons about why ASIC might reject your application to register a company.
Address related issues
ASIC accepts only property addresses that Australia Post accepts as postal addresses. ASIC will reject an address that is missing a unit number, suite number or floor level (if that information is needed for proper delivery), that includes ‘Corner of’, or that is a PO Box.
Name is rejected
ASIC will reject a name if it is inappropriate, or already taken — or is similar to a name already taken.
Information is missing or inaccurate
Generally these messages indicate that a answer has been left blank somewhere, or has inaccurate information.
Checklist for Registering a Company
Preparing to register a companyThe majority of registered companies are proprietary companies. There are a few decisions to make before you register this type of company. On this page we outline the things you need to consider ahead of time so you'll be prepared when you start your application.
- Limited or unlimited company?
- Replaceable rules or constitution?
- Choose a company name
- Decide on the state/territory of registration
- Choose registered and business addresses
- Is there an ultimate holding company?
- Choose company officeholders
- Decide on the share structure
- Choose the shareholders
Limited or unlimited company?Proprietary companies may be 'limited by shares' or 'unlimited with a share capital'. Limited by shares is by far the most common type of proprietary company.
Limited by shares means the personal liability of each shareholder is limited to the amount they have agreed to pay for the shares.
Unlimited with a share capital means there is no limit on the personal liability of the shareholders. That is, shareholders could be liable for the debts of the company even if they have paid for their shares in full.
The standard company ordered through ABNAustralia.com.au is a proprietary company limited by shares.
Replaceable rules or constitution?Every company must have rules that govern how it operates. The Corporations Act 2001 provides a basic set of rules for the internal management of a company. These are known as replaceable rules.
If you would like to make up your own rules or vary any of the replaceable rules, you will need to adopt a constitution. Superannuation companies must have a constitution.
ABNAustralia.com.au provides as standard a company constitution with every company registration ordered online. This approach is industry standard, and our constitution has been specially drafted to provide suitable flexibility with regards to share structures and corporate governance.
Choose a company nameA company can choose its own name or be known by its Australian Company Number (ACN). There are rules governing the name a company can use. The public must be able to tell if the company is a public or proprietary company, and whether or not the shareholders have limited or unlimited liability.
Proprietary limited companies must have the words 'proprietary' and 'limited' or abbreviations of these words at the end of their name. For example:
- Proprietary Limited
- Proprietary Ltd
- Proprietary Ltd.
- Pty Limited
- Pty Limited.
- Pty Ltd
Proprietary unlimited companies can only have the word 'proprietary' at the end of the name.
You can decide on your name and then use the company name availabity checker on our website or on the ASIC website to check if the name is available to register. Please not that these tools do not provide a guarantee that your proposed name is available as there may be other factors taken into consideration when ASIC reviews your company registration request.
Decide on state/territory of registrationEven though your company will be registered Australia-wide, you must nominate a state/territory of registration when you submit your application.
Choose registered and business addressCompanies are required to have a registered office address and a principal place of business address.
Registered office address
This is where all communications and notices to the company will be sent. This address must be within Australia and can't be a post office box address. If you do not occupy the registered office, obtain written consent from the occupier to use it and keep the record of consent with your company records.
Principal place of business address
This is where your company mainly conducts its business. This can't be a post office address.
ABNAustralia.com.au is able to offer registered and business address services for clients who do not currently have a suitable address available.
Is there an ultimate holding company?If all or the majority of shares in your company are held by another company, you may have an ultimate holding company.
Most proprietary companies will not have an ultimate holding company. Seek legal advice if you're not sure.
If your company has an ultimate holding company, provide the company's name, ACN/ARBN/ABN and its country of incorporation (if not Australia).
Choose company officerholdersDirectors and secretaries are known as the officeholders of a company. For each officeholder, you will need to provide their:
- given and family names
- date of birth
- place of birth, and
- residential address.
You need to obtain written consent from each person you are appointing as a company officeholder and keep this with your company records. We include these consent templates as part of our company registration package.
A proprietary company must have at least one director, however you can appoint more than one if you want to.
Proprietary companies do not need to have a secretary but you can appoint one or more if you want to.
Company Name Availability
There are a few things you should consider when choosing a company name. You cannot register a name that is identical to an existing name and some terms are restricted.
A company's name can not be identical to an existing nameYou can only use a name that is not identical to an existing company or business. Use our check name availability search to see if the name you want is available. I foy uown an identical name, you may be able to register the name for the company in some cases.
You can only use certain characters in a company nameThe following characters are accepted:
Some terms are restrictedSome words and phrases cannot be used without the approval of a government minister. Some examples include:
- 'building society'
- 'chamber of commerce'
You can't use words that could mislead people about a company's activities. This includes associations with Australian government, the Royal Family, or any ex-servicemen's organisations. ASIC may also refuse a name if it's considered offensive or suggests illegal activity.
The following are examples of restricted terms. You must seek additional approval before you can use them in a company name:
- Bank, Banker, Banking, ADI, credit society, credit union, etc.
- Friendly Society
- Made in Australia
- Police, policing
- Sir Donald Bradman
- Starr Bowkett
- Stock Exchange
- Trust or trustee
Reserving a company nameIf you aren't ready to register your company but want to make sure a name is available, you can apply to reserve it. If ASIC approves your application, they will reserve the name for two months. If you wish to extend this period, you'll need to apply to reserve the name again.
Existing trademarks that could impact your nameEven if ASIC reserve or register a name for you, a company with a similar name or trade mark can take action against you. Registering a company name does not protect you against third party claims for trade mark infringement. It is your responsibility to be aware of any similar names or trade marks that may affect your name. ABNAustralia.com.au provides trademark registration and search services and can assist you in this manner.
A company name must show its legal statusA company must show the liability of its members and status in its name. For example if a company's members' liability is limited to the amount unpaid on their shares, the name must end with 'Proprietary Limited'. if the members' liability is unlimited, the company name must end with 'Proprietary'.
How to Protect Your Company Name (trademarks)
Registering a company name does not protect you against third party claims for trade mark infringement.
To ensure your proposed company name doesn't infringe on an existing registered trade mark, and to protect your company name from being used without your permission in the future, you should search IP Australia’s trademark register, and consider registering a trademark through ABNAustralia.com.au.
What is a trademark?ABC 123
Special Purpose Companies
What is a special purpose company?A 'special purpose company' is generally one that's created for a set reason, not just general business. Special purpose companies are usually one of the following:
Superannuation Trustee Company
A superannuation trustee company acts solely as a trustee of a regulated superannuation fund. (Refer to s19 of the Superannuation Industry (Supervision) Act 1993 for more information). The company's constitution must prohibit the company from distributing income or property to its members.
Home Unit Company
This type involves a group of people (directors or members) who own or live in a block of flats or units. The company exists as a body corporate to administer the property. Only proprietary companies can be home unit companies.
This company is for charitable purposes only. The constitution requires the company to:
- apply its income in promoting charitable purposes
- prohibit distributions to its members and paying fees to its directors, and
- make its directors approve all other payments the company makes to them.
In each case, the company's constitution must meet the requirements under the Corporations (Review Fees) Regulations 2003. If you're unsure, we recommend getting legal advice.
Annual review fees for special purpose companiesSpecial purpose companies qualify for reduced annual review fees. If the company has started or ceased to be a special purpose company, you must let ASIC know before its next annual review date. This ensures that they charge the right annual review fee.
Registering not-for-profit or charitable organisationsThere are different ways you can register as a charitable or not-for-profit organisation. Before you register, you should consider what structure best suits your organisation's purposes.
- Setup a private charitable trust
- Registering as a company
- Registering as an incorporated association
- Creating a registrable Australian body
Setting up a private charitable trustTrusts are legal structures established to hold and distribute funds according to the legal requirements of the trust’s deed. Unlike some other forms of non-profit organisations, charitable trusts are not established to specifically undertake action to fulfil a purpose, but to distribute funds in a considered way in order to enable other organisations to pursue their purpose. Charitable trusts are often set up through a bequest in a will, but do not have to be. A trusts is established with the investment in the trust of an initial corpus of money that may be held in perpetuity. A certain percentage of the interest on this sum is granted periodically to particular causes, organisations, winners of scholarships or other grant-seekers. In some cases, a trust’s deed or other legal requirements such as wanting to retain tax exempt status may require that the trust only make grants to non-profit organisations or to charities
Registering as a companyCharitable and not-for-profit organisations can be registered as public companies limited by guarantee. This means the liability of the company’s members is limited. The limit is usually the amount members will contribute to the property of the company if it is wound up.
Registration of a company creates a legal entity separate from its members. This means the company can hold property and sue or be sued.
A public company must:
- have at least three directors and one secretary
- have at least one member
- have a registered office address and principal place of business located in Australia
- have its registered office open and accessible to the public
- be governed by a constitution
- maintain a register of its members
- keep a record of all directors’ and members, meeting minutes and resolutions
- appoint a registered company auditor within one month of its registration
- keep proper financial records
- lodge audited financial statements and reports after the end of every financial year.send its members a copy of its financial statements and reports. This does not apply to some companies limited by guarantee
- hold an annual general meeting once a year. The meeting must be within five months of the end of financial year.
- receive and review an annual company statement and pay an annual review fee. Some charitable and not for profit organisations are eligible for reduced fees
- tell ASIC when their details change and lodge any documents within the required timeframe.
Registering as an incorporated associationAn incorporated association is also a legal entity separate from its members. Associations can be more effective for small community organisations. They are generally simpler and more affordable than a company structure.
Associations are registered under state and territory legislation, which is not administered by ASIC. Associations can only carry on business in the state they're registered in. For example, if registered in Victoria, they can only conduct business in Victoria. If they want to trade in other states, they need to become a registrable Australian body.
Association legislation changes from state to state, but requirements can include:
- having a committee that manages the association
- having a public officer
- having a registered office in its state of incorporation
- acting under all the rules of legislation
- holding an annual general meeting once a year
- lodging an annual statement every year
- keeping proper accounting records
- keeping minutes of all committee and general meetings
- having registers of members and all committee members
- having a common seal.
Creating a registered Australian bodySome organisations, like associations, can only conduct business in their 'home' state or territory. By becoming a registered Australian body, these organisations can trade throughout all states and territories within Australia.
Pre-registration: Reserving a company name
When would I reserve a company name?If you have a particular name in mind, and it's available, then you may want to secure this name before registering the company (particularly if there may be some delay before the company is registered).
How do I check if a name is available?You can check the National Names Index to see if that name is already taken. This is a free company name search available on the ASIC website here. Alternatively, you can check if the name is available when completing our online form, which links directly into ASIC's servers.
What are the rules on names I can reserve?ASIC will reserve a name only if it is available. A name is available unless the name is:
- identical to a name that is reserved or registered under the Corporations Act for another body; or
- identical to a name that is included on the national business names register in respect of another individual or body who is not the person applying to have the name; or
- unacceptable for registration under the regulations - for example, if it is restricted (like "ANZAC") or inappropriate.
Although a name may be available, a company or a person with a similar name may bring a claim of unfair competition or 'passing off' against your company. You should seek advice as to how to protect against this possibility.
How do I reserve a company name?You will need to lodge an ASIC form 410 with ASIC. ABNAustralia.com.au offers a product to reserve a company name, just select this service option from the main menu.
How long does it last?The initial reservation period is 2 months. Each subsequent renewal is also for 2 months. However, ASIC advises that only under exceptional circumstances will more than two extensions be granted.
Pre-registration: Thinking about the Structure
How many directors must a company have?The company must have at least one director.
Do all the directors have to reside in Australia?At least one director must ordinarily reside in Australia.
Do prospective directors have to do anything?Directors must provide their written consent to act as director before the company is registered (and before being appointed a director). ABNAustralia.com.au provides a personalised consent form for each director as part of its Company Registration package.
How old must a company director be?At least 18 years of age.
What are the directors' substantive duties under the Corporations Act?Directors are subject to a number of substantive duties under the Corporations Act (as well as generally at law). The Corporations Act sets out a number of the more important duties of directors, including:
- to act in good faith;
- to not improperly use their position;
- to not improperly use information that they have obtained by virtue of being an officer of the company;
- to act in the best interests of the company;
- to avoid conflicts between the interests of the company and the director's interests;
- to act honestly;
- to exercise care and diligence;
- to prevent the company trading while it is unable to pay its debts; and
- if the company is being wound-up, to report to the liquidator on the affairs of the company and to help the liquidator (by, for example, giving to a liquidator any records of the company that the director has).
What are the consequences if a director fails in these duties?The Corporations Act states that a director who fails to perform their substantive duties:
- may be guilty of a criminal offence with a penalty of 2,000 penalty units or imprisonmentÂ for up to 5 years, or both; and
- may contravene a civil penalty provision (and the Court may order the person to pay to the Commonwealth an amount of up to $200,000).
Do I need a company secretary?No. The Company is not required to have a company secretary. However, if the company will have only one director, then having a secretary may make it easier for the company to sign documents in a way that is acceptable to the banks.
How many company secretaries can I have?There is no limit to the number of company secretaries a company may have. But it makes sense to only have one.
Do the company secretaries have to reside in Australia?If the company has:
- one company secretary, then he or she must ordinarily reside in Australia; or
- more than one secretary, then at least one of them must ordinarily reside in Australia.
Do prospective secretaries need to do anything?The person consenting to being appointed as company secretary must provide the company with a signed consent to act as secretary of the company before being appointed. ABNAustralia.com.au provides a personalised consent form for each secretary as part of its Company Registration package.
What are the secretary's administrative duties under the Corporations Act?The company secretary has a number of administrative obligations under the Corporations Act, including the responsibility for ensuring that the company:
- notifies ASIC about changes to the identities, names and addresses of the company's directors and company secretaries;
- notifies ASIC about changes to the register of members;
- notifies ASIC about changes to any ultimate holding company; and
- responds, if necessary, to an extract of particulars or any return of particulars that it receives.
Do I need a public officer?Yes. Each company must have a public officer.
How many public officers can I have?One only.
Does the public officer have to reside in Australia?Yes
What is the process?A public officer must be appointed within three months after the company commences to carry on business or derive income in Australia. Cleardocs provides the documents to take care of this. One of those documents is a letter from the public officer to the tax office. When the company is registered, the public officer needs to send that letter to the tax office.
What are the consequences if the company does not have a public officer?For every day that the company does not have a public officer it will be fined one penalty unit ($110).
What are the public officer's obligations?The public officer is answerable for the doing of all things as are required to be done by the company under the Income Tax Assessment Act 1936 or the regulations.
What are the consequences if the company is in default?If the company is in default of these obligations, then the public officer is liable to the same penalties as the company.
Registering the Company
What information do I need to have?The checklist of information required to complete a company registration with ABNAustralia.com.au is available on the product page.
What documents do I need to have?You will need the following documents in order to register a company with ASIC:
- Signed consent to act as directors and secretaries forms - ABNAustralia.com.au provides these personalised forms for each officeholder; and
- Signed ASIC form 201 - through ABNAustralia.com.au you sign these "electronically" when completing the online form.
What is the process with ABNAustralia.com.au?The process for registering a company through ABNAustralia.com.au is as follows:
- Answer the questions on the online form;
- Complete payment;
- We will lodge the ASIC form 201 electronically with ASIC;
- ASIC will return a Certificate of Incorporation with the company's ACN; and
- We will then send you the full copy of the register (which includes documents like the first minutes of meeting, share certificates and registers).
For an extra fee, ABNAustralia is able to arrange for the company's documents to be printed, bound, and courier delivered.
Post-registration: Notifying ASIC of changes to the Company
What changes to the Company do I need notify ASIC about?Either a director of the Company or the secretary of the Company must notify ASIC (by lodging an ASIC form 484) if any of the following occurs:
- Change of a company's registered office or principal place of business address;
- Change of name of officeholder or proprietary company members;
- Change of ultimate holding company details;
- Cease an officeholder;
- Appoint an officeholder;
- Change to special purpose company status;
- Issue of shares;
- Cancellation of shares;
- Transfer of shares; or
- Changes to amounts paid on shares.
Charge on company property (for example to secure a loan) must be notified to ASIC within 45 days from the creation of the charge.
Change of company name must be notified to ASIC within 14 days after the resolution was passed.
Division or conversion of shares must be notified to ASIC within 14 days from the date of change.
Reduction in share capital must be notified to ASIC before the notice of meeting for the reduction in share capital (at least 22 days before the members' meeting).
Share buy back must be notified to ASIC:
- If buy back is conditional on a resolution being passed, then a form 281 must be lodged at least 14 days before the resolution is passed.
- If buy back is not conditional on a resolution being passed and a Form 281 is required, then a form 281 must be lodged at least 14 days before agreement is entered into.
Can I outsource corporate registry maintenance?ABNAustralia offers the clients the ability to outsource their company compliance from just $66 per annum. This includes completion of the annual ASIC review, as well as lodgement of company changes with ASIC as described above.
Choosing Your Business Structure
What are the different types of business structures available in Australia?The following presents an overview of common business structures available in Australia. There are different legal and taxation consequences associated each structure. In selecting the right business structure for you it is wise to consult an experienced advisor.
- Sole Trader
When a person conducts business as an individual, he or she is a sole trader. From a legal point of view there is no difference between the person and the business. As such, the liabilities of the business are the liabilities of the individual - he or she is personally liable for any and all business-related obligations, such as debts resulting from the purchase of goods or services or from court judgements and for the performance of warranty obligations in respect of goods supplied or work performed. Many sole traders carry on business under a registered business name and may carry on business under a company structure where they are the sole shareholder and sole director.
A partnership is where two or more individuals, corporate or other entities, agree to carry on business together under a registered business name with a view to profit. All partners in the partnership must have the same goals, and, so far as third parties are concerned, each partner is equally responsible for decisions made by the other partner or partners on behalf of the business. All the partners in a partnership are treated equally from a legal point of view. If there is no written agreement, all partners will share in the profits equally, are liable to cover losses equally and are equally responsible for the activities and trading of the business. Nevertheless, from a third party's point of view, all the parties are jointly and severally liable for the obligations of the partnership. A partnership agreement between the partners should record the term of the partnership and specify all relevant aspects of the partnership business.
A partnership has no separate legal existence from the partners who make up the partnership. So far as third parties are concerned, the liability of the partners for all business debts and obligations is joint and several and unlimited. Accordingly, each partner can be sued, and be required to pay the full amount of any debts of the partnership. If this happens, a partner's only recourse may be to sue or cross-claim against the other partner of partners for their share of the debt.
A company exists as a legal entity separate from its owners (the "shareholders") and those who manage the affairs of the company (the "directors"). This means that the shareholders and directors are generally not liable for the debts of the company. Exceptions to the general principle that directors are not personally liable for debts of the company, are to be found in provisions relating to insolvent trading as defined in the Corporations Act 2001 (Cth). In essence, insolvent trading involves incurring a debt at a time when there are reasonable grounds for believing that the company is no longer able, or is likely to be no longer able to pay its debts as and when they fall due.
The Australian Securities and Investments Commission (ASIC) is the regulatory body governing companies in Australia and administering the Corporations Act 2001 (Cth). ASIC's aims are, among other things, to provide protection for consumers and businesses in their dealings with companies.
Most Companies are a Private Company (also known as a Proprietary Company).
This is a company which does not sell its shares to the general public (e.g. through a stock exchange). The transfer (sale) of shares in such a company is usually restricted in some way, such as by the requirement that the directors of the company must approve any transfer of shares and that new shareholders only become members of the company on registration of the transfer of the shares to them by the company. A proprietary limited company must have a minimum of one member (shareholder) and can have up to 50 non-employee members (shareholders). The liability of the shareholders of the company is limited to the uncalled amount, if any, owing on their shares. A private company has the words "Pty Limited" or "Pty Ltd" after its name.
The accounting requirements imposed on a proprietary company depend on whether the company is classified a small or a large company. A company's classification can change from one financial year to another as its circumstances change.
Small Proprietary Company
A proprietary company is a small proprietary company for a financial year if it satisfies at least 2 of the following tests:
- the consolidated gross operating revenue for the financial year of the company and the entities it controls (if any) is less than $25 million; and/or
- the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls (if any) is less than $12.5 million; and/or
- the company and the entities it controls (if any) has fewer than 50 employees at the end of the financial year.
A small proprietary company is only required to prepare an annual financial report (an annual profit and loss statement, a balance sheet and a statement of cash flows) and a directors' report (about the company's operations, dividends paid or recommended, options issued etc.) if:
- the shareholders with at least 5% of the votes in the company direct it to do so; or
- ASIC directs it to do so.
Although the Corporations Act 2001 (Cth) itself may not require a small proprietary company to prepare a financial report except in the circumstances mentioned above, the company may need to prepare annual financial reports for other purposes (e.g. income tax laws).
Large Proprietary Company
A proprietary company is a large proprietary company in a particular financial year if it satisfies at least 2 of the following tests:
- the consolidated gross operating revenue for the financial year of the company and the entities it controls (if any) is $25 million or more; and/or
- the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls (if any) is $12.5 million or more; and/or
- the company and the entities it controls (if any) have 50 or more employees at the end of the financial year.
Large proprietary companies must prepare annual financial reports and a directors' report. Further, the financial report must be audited and provided to the company's shareholders. Large proprietary companies must also lodge their annual financial reports with ASIC unless exempted by ASIC from doing so.
A trust structure can be employed in a business or for trading purposes. A trust involves the trustee (usually either an individual or corporate entity) holding certain assets in his, her or its own name but for the benefit of a group of persons and/or entities (e.g. referred to as "beneficiaries"). The trustee is required to use any property belonging to the trust for the good or benefit of the beneficiaries, and not for his, her or its own purposes. Trusts are often created because of the flexibility they allow in tax planning, tax minimization and asset protection. They are also a popular form of business structure because they allow a flexible means of distributing income and assets and because they can provide certain income tax savings by distributing income among tax advantaged beneficiaries.
A trust itself does not pay income tax on profits, provided that the profits of the trust have been fully distributed to the beneficiaries in the relevant financial year. Trusts are relatively simple to form. However, the law of trusts is quite complex and a lack of appreciation of the law or an inadequately drafted trust deed can give rise to problems. Accordingly, anyone contemplating the use of a trust as a business structure should seek legal advice.
The two main types of trusts are:
- unit trusts; and
- discretionary trusts (family trusts).
In a typical unit trust, beneficiaries own units in the trust, and the trustee must distribute the income to the beneficiaries/unitholders in accordance with their respective unit holding or class of unit holding in the trust. Accordingly, a unitholder in a unit trust, like a shareholder in a company, has a specific entitlement to a share of the income or property of the trust in accordance with his or her unit holding in the trust. Different classes of units may have the same or different rights and entitlements (e.g. as to share of income or capital, voting rights and preferential rights to interest or income) between them.
On the other hand, in a discretionary trust, the trustee typically has the discretion to decide which beneficiaries will receive distributions of both income and capital, and what amount(s) (if any) they will receive between them.
The discretion as to distribution of income and capital should be exercised afresh each financial year. This is an important advantage in tax planning. Subject to the Corporations Act 2001 (Cth), limited liability may be achieved with discretionary trusts by the use of a corporate trustee. Discretionary trusts are a common choice for family-run businesses.