When we talk about structuring, its important to understand what your plans are, and also what options might be worth considering. And this equally applies to our individual clients as well as those in business.
So lets look at some of the basics:
Individual Names – obviously nothing to set up, as you already exist, so it’s a low cost option. But the negatives are a lack of separation from your personal life, big asset protection issues, no flexibility on taxation and succession planning issues.
Joint Names – a variation on the above, but at least there are 2 or more people to split things with, but it will be in fixed percentages according to ownership. Can also be automatic ownership transfer upon death to the surviving owner.
Partnership – a common approach for many investors or small businesses when starting out as there are not a lot of costs involved. Some larger businesses deliberately operate as a partnership to allow for easy entry/exit of partners over time (Law firms etc). The disadvantages are usually around liability, all of the partners are jointly and individually liable for the business debts. Income is split according to the share of the partnership ownership percentage and access to Capital Gains Tax concessions are available.
Company – a very common operating structure for a business, less so for investors. The advantages are being able to access a relatively low flat tax rate, your liability is generally limited to the capital that you have invested into the company therefore offering a degree of asset protection. The biggest drawback is the inability to access all of the Capital Gains Tax concessions, it is for this reason many investors into property or shares, will be advised against a company structure. There are also initial set up costs and on-going annual fees.
Unit Trusts – a great option for multiple owner situations, where ownership can be split according to a Unitholder percentage. There is separation of ownership from personal affairs and the individual unitholders are not jointly liable like in a partnership scenario. Unit Trusts may also be able to access the Capital Gains Tax concessions. When it comes to the negatives, there are lengthy and complex documents at the initial set up stage, which will cost a bit of money, and often annual on-going costs.
Family Discretionary Trusts – a favourite amongst small business owners and also investors alike. There is no fixed ownership percentages, meaning that every year you have discretion over who to allocate the income or profits to, potentially saving massive amounts of tax. There is separation of ownership from personal affairs which gives a great degree of asset protection. Family Discretionary Trusts can also access all of the Capital Gains Tax concessions. When it comes to the negatives, there are lengthy and complex documents at the initial set up stage, which will cost a bit of money, and often annual on-going costs. They are rarely a suitable structure for unrelated owners to operate together.
The team at GNS Group are across all of these different structures, and can help guide you to the right one for your circumstances. In some instances, the best option is a combination of several of these.
We are happy to review existing structures and also advise on the set up of new ones for investors and businesses. Its often better and in the long run, cheaper, to get things right from the start than to have to change things later on. Talk to us today to see how we can help.