Incorporate a new company as trustee of your Unit Trust

A company as trustee for a Unit Trust

In Australia, a company is commonly built to be a trustee of a Unit Trust or a Family Trust.

E.g. New Comp Pty Ltd as trustee for the Smith Unit Trust

A company used for this purpose is called a ‘corporate trustee’.

Why don’t I need an ABN or TFN for my corporate trustee?

A corporate trustee does not need an Australian Business Number (ABN) or a Tax File Number (TFN). A corporate trustee has neither an ABN or a TFN because it, itself, does not trade. The corporate trustee has no ‘beneficial’ interest in the assets it holds for the trust. The corporate trustee (this is the company you are currently building) merely holds the assets for the ‘true’ owner being the Unit Trust.

Therefore, the Unit Trust gets the ABN and TFN.

Similarly, the corporate trustee does not do tax returns. This is because it does not own beneficially any assets. For tax purposes, the corporate trustee owns no assets.

Why have a company as trustee of your Unit Trust?

Running a business – any business – is high risk. To reduce that risk you separate, as far as you can, the business from the individual. One method to do this is to trade through a Unit Trust which has a company as the trustee. This is called a ‘Unit Trust with a corporate trustee’. It is a low cost and very effective way of carrying out asset protection. The Unit Trust is a common business structure where more than one family is involved. It is good if you and your friend are going into business together. (If you are setting up a business with just yourself then consider a corporate trustee with a family trust instead.)

Do I set up the corporate trustee first, and then the Unit Trust Deed?

1. Build the company first.
2. The sole director is the person of straw (has no assets in their name).
3. The sole director holds one share worth $1.00 ‘as trustee for the ‘yet to be built’ Unit Trust. Or, if you have a spouse, then the Director holds no share, instead, the Spouse is the one and only Shareholder and holds one share worth $1.00.
4. Wait for us, as your lawyers, to check and incorporate the company.
5. Once incorporated you now have the a) confirmed name of the company and b) Australian Company Number (ACN).
6. Armed with the company name and ACN you can build the Unit Trust Deed.
7. Now build the Unit Trust Deed on our website
8. The Trustee of the Unit Trust is your new company.
9. The Unit Holders are you and your business partners.

Who should own the shares of a corporate trustee?

While the corporate trustee:

1. has no assets (other than the $1.00 paid-up capital); and

2. can be sacked by the Unit Holders of the Unit Trust anytime

it is still important that each Unit Holder has some interest in the corporate trustee’s shareholding.

Register your new company on our law firm’s website

We check your company registration. This is before it proceeds to ASIC.

Incorporating a company with ASIC is important.

Our company and constitution comply as:

1. a trustee of a unit trust, family trust and bare trust

2. a trustee of Self-Managed Superannuation Fund

3. a crowd-sourced funding vehicle

4. a vehicle to operate a business

Restricting your choice of corporate trustee name

As you build your company on our website, check if your preferred company name is available.

You can’t use the words:

‘bank’
‘trust’
‘royal’
‘incorporated’

You can’t use words that could mislead people about a company’s activities. This includes links to the Government, the Royal Family, or ex-serviceperson groups.

ASIC refuses offensive and illegal names.

Allowed short-forms in company names

and: &

Australian Business Number: ABN

Company: Co, Coy

Proprietary: Pty

Australian: Aust

Proprietary Limited: Pty Ltd

Corporate trustee Constitution vs replaceable rules

Companies are governed by:

* a constitution (recommended), or
* replaceable rules

Replaceable rules (from the Corporations Act 2001) provide a basic set of rules for your company. They are not good. Few accountants, lawyers or advisers recommend them.

Replaceable rules are less than the bare minimum. There are many additional powers that a company should have. These are only found in a constitution.

Replaceable rules change at the whim of the current government. While the changes may benefit ‘society’, they may not be in the best interests of shareholders. In contrast, shareholders amend constitutions anytime.

Our coporate trustee atf unit trust Constitution contains:

* Adjunct Professor, Dr Brett Davies’ Doctorate was on business succession planning, our pre-emptive rights are cutting edge
* tag along requirement’ forcing minority shareholders to also sell their shares together with majority shareholders
* accountant friendly, GAAP compliant valuation powers
* profit distributions, even when there is no ‘profit’ for ATO purposes
* over 30 different classes of shares
* allowing Directors and shareholders to use Skype and other online facilities
* built-in Division 7A Loan Deeds

Seven advantages of using a law firm website to build your unit trust corporate trustee

The 7 advantages of using Legal Consolidated:

1. 94% of incorporations happen within 25 minutes of you building the company online
2. our lawyers personally vet the details before submitting to ASIC
3. when required, we contact ASIC to confirm your company name
4. what if your company name is unavailable or challenged by ASIC? We contact you via telephone and help you find one that is available
5. you receive a secure, personalised email containing
   • Certificate of Incorporation
   • Company Constitution
   • All minutes
   • Letter on our law firm’s letterhead
6. as always, our hints and training videos guide you. The law firm is available 24/7 via telephone for legal advice on how to build your document
7. a constitution is a deed. Only a law firm can legally prepare deeds.

Company tax rates

A company pays tax at a fixed rate. (In contrast, a human being pays tax at different marginal tax rates. The more you earn the higher the tax rate.) Your company tax rate depends on whether the company is a base rate entity.

From 2020 there is a 5% difference.

For example, in 2018/19, a company’s base rate entity and use the Low Rate if its aggregated turnover is less than $50m and 80% or a less of its assessable income is base rate passive income. Passive income includes such things as dividends and rent.

The maximum rate that a company can use to frank dividends is its corporate tax rate for imputation purposes. It is worked out based on the company’s position in the prior year. It is either the current year Low Rate or the High Rate based on the prior year’s levels of aggregated turnover, base rate passive income and assessable income.

If the company was set up in the current year then the maximum franking rate is the Low Rate for the current year.

For more legal advice telephone us. We are a law firm. We can help you answer the questions.

Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors

National Australia law firm
Mobile: 0477 796 959
National: 1800 141 612
Email: [email protected]