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To quickly + cost effectively (circa $550) incorporate + register a new Pty Ltd company under the Corporations Act Cth. (2001) with ASIC we use + recommend an online Australian Pty Ltd company incorporation service eCompanies.
You can create the new Pty Ltd company yourself or we can create it on your behalf.
Note: There are ongoing annual ASIC fees.
Please read our FAQ:
Why use a "Sole Purpose" Corporate Trustee to control your Family / Discretionary Trust? for a summary of the pro's and con's to assist with your decision (if you are considering this strategy).
We recommend all Director/s + Shareholder/s complete our Free Legal Health Check [Australia].
Below we have summarised all of the typically required Pty Ltd Company Formation Documents under the Corporations Act Cth. (2001) we provide via our Legal Document Portal:
✅ Consent to Act as a Director/Officer for each Director/Officer [FREE];
✅ Pack for appointment of directors/officers [FREE];
✅ Director approval of execution of documents;
✅ Deed of Access and Indemnity for each Director/Officer;
✅ Application forms for issue of up to 5 new securities of different types/classes;
✅ Consent to become a Shareholder, Share Certificates for all initial Shareholdings;
✅ Establishment of all required Company Registers; and the
✅ Shareholders' / Unitholders' Agreement (If there is more than 1 Shareholder).
✅ Consent to Act as a Director/Officer for each Director/Officer [FREE];
✅ Pack for appointment of directors/officers [FREE];
✅ Director approval of execution of documents;
✅ Deed of Access and Indemnity for each Director/Officer;
✅ Application forms for issue of up to 5 new securities of different types/classes;
✅ Consent to become a Shareholder, Share Certificates for all initial Shareholdings; and the
✅ Establishment of all required Company Registers.
Upon establishment of the Pty Ltd Company under the Corporations Act Cth. (2001), you need to:
1️⃣ Promptly make an application for an ABN and TFN for the Pty Ltd Company (or Trust - if applicable); and
2️⃣ Open a separate bank account in the name of the Pty Ltd Company (or Pty Ltd Company "as trustee for" the full name of the trust - if applicable).
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The trustee of your Family / Discretionary Trust may be:
⚖️ One or more individuals; or
⚖️ A dedicated 'Sole Purpose' Pty. Ltd. Corporate Trustee incorporated under the Corporations Act Cth. (2001).
A Corporate Trustee is normally a private (i.e. proprietary limited) dedicated 'Sole Purpose' Pty. Ltd. company incorporated under the Corporations Act Cth. (2001) with ASIC for the sole purpose of acting as the corporate trustee of your Family / Discretionary Trust.
A trustee company, or in other words a Corporate Trustee is:
✅ Normally a private non-trading (that is, it does not deal with the public at large, so it is therefore not exposed to the many possible liabilities which arise when a business trades with the public) company;
✅ Which is incorporated under the Corporations Act Cth. (2001) solely for the purpose of being appointed to act as the sole trustee of a Family / Discretionary Trust.
Please Note: This does not mean that the Family / Discretionary Trust itself cannot deal with the public, it can and very often does trade.
When this happens the Trust is called a Trading Trust.
When the Trust only holds passive investments and does not deal with the public, it is called a Non-Trading Trust.
The advantages of using a Family / Discretionary Trust with Corporate Trustee include:
✅ Limited Liability:
A Corporate Trustee is a separate legal entity incorporated under the Corporations Act Cth. (2001) and has the benefit of limited liability.
This means that the individual directors will not be held personally liable (excluding exceptional circumstances such as an instance of fraud).
✅ Separation of Assets:
Using a Corporate Trustee automatically ensures that trust assets are kept separate from personal assets as they are held in the company name.
To further strengthen this advantage, it is generally recommended that being the trustee of the trust is the sole purpose of the Corporate Trustee.
If the company also runs a business, such that it is trading with the public, confusion can be created regarding whether it is holding assets in its own name or on behalf of the trust.
✅ Reduction of Land Tax:
The higher the value of the property or properties held in an individual's name within the same state or territory, the more potential land tax is payable.
If each property is instead held in a separate Family / Discretionary Trust with a different Corporate Trustee, you can obtain the benefit of the land tax-free threshold for each property, and if land tax is payable, the lowest possible land tax rate would be applied.
✅ Simpler Administration:
No additional income tax return will be required for the Corporate Trustee, as it will qualify for non-active status with the ATO.
If there is a need in the future to change the control of the trust, having a Corporate Trustee will save you a lot of time, effort and cost.
In order to change control of the trust, it becomes a simple matter of preparing a share transfer form and/or a resolution to appoint or resign a director with the appropriate form being lodged with ASIC.
For example: Changing control of a Family / Discretionary Trust which owns real estate
When a Family / Discretionary Trust purchases a property, the property is held in the name of each trustee that is listed on the certificate of title "as trustee/trustees" rather than the name of the Family / Discretionary Trust itself.
If individuals are named as trustees, then when a trustee changes, a lawyer is required to be retained to effect the required updates to the certificate/s of title together with any associated mortgage documentation.
When there is a Corporate Trustee incorporated under the Corporations Act Cth. (2001) all that needs to be done is to prepare a share transfer form and/or a resolution to appoint or resign a director with the appropriate Form 484 being lodged with ASIC.
These changes can be made easily and at a nominal cost.
Even though the shareholders and directors of the trustee company may change, the trustee company will still remain as the sole trustee of the Family / Discretionary Trust.
This means that no change is required to the certificate of title/s or to any associated mortgage documentation.
Almost all trusts (which in Australia generally have a maximum term of 80 years: refer to this FAQ for more information) will need to effect a change of control of the Family / Discretionary Trust at some point in time.
Examples of when there is a need to change control of the Family / Discretionary Trust include:
⚖️ Your children take over your trust when you pass away;
⚖️ You change accountants/lawyers who have been acting as a professional trustee as you're not happy with their service;
⚖️ You change accountants/lawyers who have been acting as a professional trustee as you relocate within Australia or they close down or sell their business;
⚖️ You may need to change trustee if you move overseas;
⚖️ The death of any individual trustee (See below discussion: a Corporate Trustee incorporated under the Corporations Act Cth. (2001) does not die);
⚖️ Your marriage or relationship comes to an end.
✅ Simple succession: A corporate trustee incorporated under the Corporations Act Cth. (2001) does not cease upon the death of one of its directors.
Whereas if an individual trustee dies (in particular if they are the only remaining trustee) there will be legal costs + complications regarding the continued administration of the trust.
The main disadvantage involved in using a Corporate Trustee incorporated under the Corporations Act Cth. (2001) with a Family Trust is the up-front + ongoing annual costs.
Incorporating a company incorporated under the Corporations Act Cth. (2001) can be done online, quickly and cost effectively using a service such as eCompanies (circa $550).
All companies have ongoing annual ASIC fees.
If the cost of incorporating and maintaining a dedicated 'Sole Purpose' Corporate Trustee is a prohibitive factor in deciding whether or not to form your Family / Discretionary Trust then you need to seriously consider whether it is worthwhile to form the Family / Discretionary Trust in the first place.
Credits:
This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.
Important Notice:
This FAQ is intended for general interest + information only.
It is not legal advice, nor should it be relied upon or used as such.
We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.
Tag-along rights give non-selling securityholders the right to sell alongside the selling securityholder (ie, the selling securityholder can't complete its sale unless the proposed purchaser also offers to buy out the tagging securityholders).
Drag-along rights give the selling securityholder the right to force the non-selling securityholders to also sell to the proposed purchaser.
This is particularly important where the proposed purchaser will only complete if it gets 100% ownership.
Depending upon the terms of your Shareholders' / Unitholders' Agreement, generally both Tag-along and/or Drag-along rights apply in the event of a proposed sale of shares by a securityholder.
Generally tag/drag rights will only apply:
✅ After the transfer pre-emption provisions have been followed;
✅ If the remaining securityholders do not offer to purchase all of the sale securities;
✅ If the seller then elects to sell all of the sale securities to a bona fide third party; and
✅ If the size of the proposed sale exceeds specified thresholds.
If there is no Shareholders' / Unitholders' Agreement, then the above tag-along / drag-along rights will not be able to be exercised.
Once there are multiple Shareholders / Unitholders it is often too late to get them all to unanimously agree to enter upon agreed terms of a Shareholders' / Unitholders' Agreement.
The ideal time to establish these important rights is in a Shareholders' / Unitholders' Agreement entered at establishment.
That is, before more than 1 Shareholders / Unitholders subscribe for securities.
If you would like the tag/drag rights to apply in the above and/or any other circumstances, we recommend you obtain legal advice at the time the Shareholders' / Unitholders' Agreement is being drafted.
Tag-along rights will apply if a proposed sale would result in a third party acquiring a certain level of voting power or more.
Please note that, since the threshold is linked to voting power, a choice of 100% can make sense where the intention is to permit the holders of non-voting securities to tag along in an exit by the holders of all voting securities.
Voting power threshold for tag-along rights is typically 80-90%.
This is a percentage of the total securityholder voting rights.
The tag-along rights will only apply if the sale would result in a third party acquiring this level of voting power or more.
Voting power threshold for drag-along rights is typically 80-90%:
This is a percentage of the total securityholder voting rights.
The drag-along rights will only apply if the sale securities carry in total this level of voting power or more.
Credits:
This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.
Important Notice:
This FAQ is intended for general interest + information only.
It is not legal advice, nor should it be relied upon or used as such.
We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.
Key Person Insurance or Buy/Sell Insurance (or in the case of a Partnership Agreement, Partnership Buyout Insurance) provides the funds needed for the remaining owners of a business/trust to:
✅ Takeover or purchase the exiting owners share; and/or
✅ Have access to the required funds to replace the Key Person or recover from the loss of the Key Person from the business …
In the event of their death, total and permanent disability, or severe illness/trauma such as heart attack, stroke, cancer and/or paraplegia.
This type of insurance cover helps the business continue running with minimal disruption.
For the departing person or their estate, this insurance assists them to receive the agreed (normally market value) of their shareholding in return for transferring their business share to the remaining owners of the business/trust, or terminating their Employment / Independent Contractor Agreement.
The Best practice within a Shareholders' or Unitholders' Agreement is to include terms that ensure life, permanent disability + trauma insurance is taken out in relation to all of the Securityholders.
The company or unit trust pays the annual insurance premiums.
Then, if a Securityholder is required to offer its securities for sale to the remaining Securityholders as a result of death, permanent disability + trauma sufficient to be covered by the insurance policy, the proceeds of the insurance policy are used to assist the remaining Securityholders in buying those securities.
The directors or trustee/s determine the amounts for the insurance policy from time to time, with the consent of Key (that is the majority or controlling) Securityholders.
In our Shareholders' or Unitholders' Agreement, by default, the death or incapacity of a Securityholder will not trigger a right for the other parties to buy out that Securityholder.
If you choose to add our Best Practice Buy/Sell Insurance provisions to the Shareholders' or Unitholders' Agreement, then death/incapacity will be added as a trigger event requiring the affected party to offer its securities for sale to the remaining Securityholders.
The potential for future ownership changes, and triggered tax implications {including income tax, capital gains tax, and fringe benefits tax) should be considered before final arrangements are made.
Credits:
This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.
Important Notice:
This FAQ is intended for general interest + information only.
It is not legal advice, nor should it be relied upon or used as such.
We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.
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