Trust is a relationship where trustee carries out a business for the benefit of other set of people. It can be beneficial to certain group of people or to the one to all of them where amount of social cause is divided in to various units. The report discusses the case of Harry, Meghan, William and Kate who are planning to open a party planning business. However, two of them will have higher amount of investment in comparison to the other two. They want to divert 50% of their profits for some social cause. The report discuses regarding availability of various business structures and their advantages and disadvantages. The structure of opening up a unit deed will also be discussed in the report. The report then discusses regarding the concerned authority related to the study of unit trust and its clear application on the give case scenario. The report will also discuss regarding appeal authority in case of concerned issue that may arise while acting as a unit trust. State of law with respect to various types of trusts will also be duly discussed in the report in detailed manner.
The cases discuses regarding two people named Harry and Meghan, who are in close relationship with William and Kate. The former two are planning to open up a party planning business. However, they have limited capital with them so as to fund their business. Hence, they have asked William and Kate to join them so that they can get some amount of investment from their side as well. They are ready to support their friends as they are quite curious to expand the source of their income. However, they both do not want to indulge in the operations of the business and want their risk to be minimised (Lancaster, Seear and Treloar, 2015). On the other hand, Harry and Meghan are passionate enough regarding the making the business ethical and sustainable as well. They want that the business has certain social aspect where they can divert 50% of their profits to funding programme with the aim to homelessness in Australian capital cities. Their issue is related to what type of business structure they must opt for that can help in fulfilling their business as well as social goals.
There are basically four common business structures that are common in Australia. These are, Sole traders, partnership, trust and company. A sole trader is an individual who is solely responsible for running any business. Since, it is an inexpensive set up. The main advantage of sole trader is that there is no legal formality attached to it and hence, one can start s sole trading business as soon as any idea comes up in his or her mind (Gelber and McNamara, 2015). All the responsibility of making day to day business and taking any action have high dependence on the sole trader itself. However, the main disadvantage of this type of business is that the capacity of raising required capital for the business is quite limited. hence, less chances are there for the company to expand its business.
Another type of business structure is partnership, which is related to a contract made by some individuals so as to share the profits in some ratio in a manner that partnership act is sanctioned between them. The main advantage of establishing a partnership business is that people are able to divide their duties, their responsibilities and if any type of losses arise in this field, then partners can divide the loss and bear it as per the sharing ratio as well (Fowler, 2013). However, the main disadvantage of having a partnership type of business structure is that that there is high risk of disagreement and friction among the partners and management. It can lead to closure or dissolution of partnership deed (Harari and Perkins, 2017).
Another type of business structure is company which is a legal entity with higher set up and administration cost. There is additionally reporting requirements attached to it. The regulatory body of the company is Australian Securities & Investment Commission. The main advantage of being a company is that it has an expanded scope of getting capital. There are various methods through which company can be able to get funds for its operations. It includes, equity shares, preference shares, debentures, etc. However, the main disadvantage of being a company is that it may be quite expensive and time taking process to establish a company. If directors of the company fail to meet the legal obligations, in such cases, they may be held personally responsible for the debts (Cherney and Murphy, 2016).
The last type of business structure is trust whose set up can be somewhat expensive to the organization. The profit generated from the trust must be transferred to the beneficiaries. The main advantage of establishing a trust is that the overall structure helps in having high degree of privacy in a company. However, the main disadvantage attached to this business structure is that the structure of establishing trust can be complex. It can be expensive in nature and can be difficult to establish and maintain as well. The power of trustees is generally limited to trust deeds.
The business structure required by the people in the business is related to social aspect as well. However, the company is not directly involved in any type of social cause. Hence, it can be stated that, trust will be a beneficial yet effective business structure that can be adopted by four of them so as to fulfil the requirements of being profitable for themselves and they will also be able to divert 50% of their profits to some social cause as well (Wheeler, MacDonald and Boxall, 2017).
State of law
Australian trust law is law of trust which is applicable in the overall territory of Australia. It was introduced in 1970. The word “Trust” refers to the accumulation of obligations that ultimately rest upon a person described as trust. The responsibilities are in relation to the property held by him who is under control. The trustee has legal interest in the property of the trust. There are various types of trust that has been mentioned in trust law of Australian government. Trust is considered o be a fundamental element of planning a business which has been establish to fulfil certain charitable or social cause. It is an umbrella term where variety of structures are mentioned which has its own specific procedure, regulations and tax rules. It held a very simple concept (Denemark, 2012). It is a legal arrangement in which ownership of one’s assets, which can be in the form of bonds, cash, bonds, real estate, stocks or even the works of arts and antiques. The same is then transferred to the trust and then held to be managed by the individuals. People who are appointed to manage a trust is in the form of assigned assets, also called as trustees. There are basically three types of trusts. These are, discretionary trusts, unit or fixed trust and hybrid trusts.
Discretionary trust one of the most common trust format that is applicable in Australia as a small business structure. The trust is said to be ideal for families with private businesses and income generating assets. It has quite easy method to set up, simple to be operated and accepted in almost every Australian state. A high amount of flexibility is extended by the law for these trusts with respect to sharing of tax burden among different family members, distribution of income and ultimately for protecting assets of the business as well.
Another type of trust is unit of fixed trust. It is quite different from that of family trust as the trustee does not opt for discretion over distribution of capital. It is rather divided into beneficial ownership of trust property into various units. It is quite similar to shares as they operate somewhat like a company (Millbank, 2015).
Another type of trust is hybrid type of trust which states that lays on the characteristics of family trust and unit trust both. In this aspect, trustees are generally given power to distribute trust income and capital among the nominated beneficiaries. It is one of the commonly preferred method adopted by the companies as a structuring of business or investment activity. As it helps in getting tax benefits in the form of income tax and capital gain tax. Since, it is an investment activity, it can be stated that this type of trust is generally adopted by the companies who can run their company for profitability and transfer a certain percentage of profits for some social case. Adequate amount of tax benefits is earned by the company at this stage. A specific procedure is required to be followed which involves various steps to be fulfilled. Hence, the steps are as follows:
- Deciding upon original trust assets where all the assets having certain holding value are disclosed (Arklay, 2013)
- In the second step, trustees are appointed in the form of financial institution. It is important that the trustee appointed is a person in trust as all the legal authorities are borne by that individual. Moreover, trustee is also given right to have adequate control over the assets of the company.
- Compiling the list of beneficiaries to whom profit percentage will be transferred by the company. A clear identification of entitlement is also necessary in such cases.
- Drafting of trust deed is another important document. It is a legal trust deed which tends to prescribes all the rules and regulations governing your fund and power that lies in the hands of a trustee. It may include the objective funds specifying all the original trust assets, identification of beneficiaries, identification of benefits to be paid in a lumpsum or income stream format. Moreover, rules regarding operation of the trust bank account along with all the terms and conditions are also required to be mentioned in trust deed. Trust deed must be crafted by someone who have specialised knowledge in the field of finance and law for its effectiveness. It execution must be according to the rules and regulations of territory and must be regularly reviewed and updated by the legal advisor (Bove Jr, 2017).
- The fifth step is related to stamping where stamp duty tax is required to be paid depending upon what territory it actually belongs to. It can also be arranged directly through relevant revenues.
- The sixth step involves it is important for the trust to be registered with the help of Australian Business structures. In the order to fulfil all the requirements, it is important to get an ABN (Australian Business Number), TFN (Tax File Number) and a valid business name for the trust. A higher dependence of type of trust one is going to get itself registered in. A trust can also be registered as a company based upon the nature of business and profit ratio it is planning to carry out.
- After getting all the registration numbers and once the trust has been established, it is important that the trust have a bank account and it must be opened on the name of the trustee. The bank may also demand for the personal details of trustees.
- In the eighth and last step of managing a business structure as a trust, after preparing a bank account, the trust is able to begin its operations.
In this manner, trust can be established so as to conduct business function (Flourentzou, 2016).
The law that is followed by companies involving in building themselves as a trust. Hence a specific trust law has bee introduced by the Australian government which is required to be followed by the company opting to act as a trust. The statutory rules and regulations governing it states that all the rules and regulations being mentioned in the act are required to be followed by the framed trust. Unit trust are generally used in various commercial arrangements. In this type of trust, the investment of the company is managed in such a manner that tax can be saved of the organization also with some social service extended to the society.
Unit trusts are commonly treated as the corporate entities. Under the division 6C of Part III of Income Tax Assessment Act 1936 (ITAA 1936), a public trading trust (PTT) must be both. It can be a trading trusts under which a apart from solely carrying passive investments, such as, shares, land and other fixed assets. It can also indulge in some other activities as well. A public trading trust can also lodge a company tax return using TFN of a company as well. A trust can also act as a corporate entity and lodge a company’s tax under it.
Since, a trust is an obligation which is required to be fulfilled by the individual who is opting for a trust business structure, A specific percentage of income from the overall profits of the company can generally be diverted to the trust (Parry, 2015). The net income of the trust is its assessable income less all the deductions based upon the assumptions made. Moreover, income is generally decided based upon the trust deed, the amount of tax base upon income tax law and trust tax law. In such cases, the tax is applied to the assessable in income based upon the trust law on the amount that is going to be diverted on the way of trust. On the remaining amount tax will be applied as per the rules and regulations of company tax act.
Trustees tend to have deviated views regarding the impact on changes in such a manner that it is required to be borne by the trustees as well. All the trust related registrations are required to be considered before opting for any type of decision to be taken by the team. In order to het the corporate unit trusts applicable, it is important that the organization is able to fulfil the needs and requirements of corporate unit trust.
In case of any issues arising as trusts will be treated as corporate tax entity, at that time. In order to lodge any type of complain the company has to share its current TFN number for further validation process. Supreme court of Australia have the authority to take up the actions. There are basically four specific posts who works together to work up the trust. These are, general trustee, investment trustee, distribution committee and trust protector. Other position includes, loan director, charitable selector, substitutor and Additional beneficiaries. They tend to work as a team to ensure that all the important aspect is covered and applied in the formed trust (McCullough, 2013).
Applying all the rules laws and regulations of trust on the case of Harry, Meghan, William and Kate, the condition in which these four people want to run their business is directly similar to the rules and regulations of unit trust. The four wants to have a venture that can help them in generating substantial amount of profits. Further, they also want to transfer 50% of their profits to some social cause that can help them in saving their tax and keeping their risk of obligation to the minimum (Specific rules for some trusts, 2018).
Unit Trust is quite related to the business scenario that has been discussed with respect to Harry, Meghan, William and Kate. In case of unit trust, it becomes important for the organization to transfer some part of the business profits to the trusts. The charitable trust rules and regulations are required to be followed by the organization in such a manner that all the benefits of being a trust can be implemented by the business that will be framed by four of them. The court of appeal in case of anything that emerges out to be illegal is supreme court which takes all the decisions regarding this matter.
Being a trust help in transferring 50% or more to some charitable work or for the well ness of society. Hence, in this manner, the adoption of this type of business structure will help them in generating profit and also transfer some of the output for some social cause as well. Hence, its adoption will prove to be beneficial for them and all the concerns regarding running a business will also be sort out through this method (Broderick, Monotti and Eynaud, 2016).
From the above report, it can be concluded that, there are basically four common business structures that are common in Australia. These are, Sole traders, partnership, trust and company. The structure of each and every aspect for the business may differ as per the preferences and relevance of products and services generally offered by the business. As per the case given with respect to Harry, Meghan, William and Kate who are planning to open up a party planning business. They want to divert 50% of the earned profits in some social cause. In such case, the suggested type of business structure is Unit trust as it helps in continuing with the business where a unit or share of it is generally transferred for some social cause. Unit trusts are commonly treated as the corporate entities. Under the division 6C of Part III of Income Tax Assessment Act 1936 (ITAA 1936), a public trading trust (PTT) must be both. Moreover, income is generally decided based upon the trust deed, the amount of tax base upon income tax law and trust tax law. Applying all the rules laws and regulations of trust on the case of Harry, Meghan, William and Kate, the condition in which these four people want to run their business is directly similar to the rules and regulations of unit trust.
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