Convert old company to a special purpose company – to be trustee of your SMSF (save on ASIC fees)

• Company Constitution Replacement

• $148 includes GST

• Convert old company to a special purpose company - to be trustee of your SMSF (save on ASIC fees)

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Turn your old company into a Special Purpose company –
to be the trustee of your Self-Managed Super Fund

Replace a Special Purpose Company Constitution so that your old Company can now be used as trustee of a Self-Managed Superannuation Fund.

You are about to replace a Company Constitution on our law firm’s website. You are building everything you need including:

* the replacement Constitution so that the company can now only be used as a Special Purpose Company to be the trustee of your Self-Managed Super Fund (and therefore get the lower annual ASIC fees)
* Member Minutes
* law firm letter confirming the above for your accountant’s and auditor’s due diligence file

Can you convert a proprietary limited company into a ‘special purpose company’?

There are three types of Australian companies: Propriety (e.g. Pty Ltd); Limited (Ltd) and No Liability (e.g. NL).

Of the companies in Australia, 99.9% are Proprietary. E.g. Pty Ltd. Yes, you can convert a Pty Ltd into a Special Purpose Company. You can convert your proprietary limited company to be a special purpose company to be the trustee of your Self-Managed Superannuation Fund.

Which is better as trustee of your SMSF: company vs human?

When I started practising in superannuation law in the 1980s the majority of Self-Managed Superannuation Funds had just dad as the trustee. (In those days you only needed one trustee. Now all the members must be trustees. Or, all the members must be directors of the company.) These days most superannuation lawyers. accountants and financial planners recommend a company as trustee of your SMSF. This is because:

1. A company lives forever. This is better succession planning. If a member dies you don’t need to transfer land. The land just says in the company name. You change the directors only. (While there is no stamp duty to transfer the property from one human trustee to another it is an added expense.)

2. You need a Deed to change an SMSF Trustee. You change trustees via a Deed of Variation of your SMSF. Conversely, changing a director is straightforward.  This is because merely changing a director of the company does not change the Trustee. 

3. If mum and dad are the two trustees there is a problem if one dies. An SMSF cannot have just one human as trustee. You always need at least two humans. Upon your spouse’s death, you, therefore, need to act quickly to appoint another human as trustee (or replace the human with a company). However, when your spouse dies the last thing you want to worry about is getting your SMSF compliant again. In contrast, a company is compliant with just one director.

4. Ease of SMSF audit

You can’t mix SMSF assets with your assets. When you have a dedicated special purpose company that has no job other than to be your SMSF trustee this is easier to comply with. When Mum and Dad buy an asset for the SMSF they may forget to add ‘as trustee for the SMSF’. You are in breach. In contrast, if you buy an asset in the name of the company and forget to put ‘atf the SMSF’ it is not such a big issue. 

5. Contrary to popular belief, an SMSF can go insolvent. Any structure, even a conservative super fund, may not be able to pay its debts as they fall due. Also, the SMSF can be sued. If you have a company you have another layer of protection. (A director of a company does not automatically go down with the sinking trustee company.)

6. When an SMSF wants to borrow money the bank requires that both the SMSF and the trustee of the Custodian Trust both be companies (different companies, of course).

7. The SMSF ‘Central Management and control‘ rules are easier to comply with if you travel outside of Australia.

8. ATO penalties are less draconian with an SMSF special-purpose company. In contrast, human Trustees are jointly and severally liable.

9. A corporate trustee (SMSF special purpose company) pays lower ASIC fees each year. (Your special purpose company won’t have an ABN as it does not trade in its own right. Instead, the SMSF has the ABN. Your corporate trustee does not prepare accounts for itself, as it has no assets. Only SMSF accounts are prepared.) But you do have the added ASIC expense of setting up the company. Human trustees are free.

Let ASIC know you have converted to an SMSF Special Purpose Company

Build this Convert a Company Special Purpose Company Kit online. It turns your old company into a Special Purpose company. Your company then pays much lower yearly ASIC fees. But you need to let ASIC know. After you built and signed the documents lodge ASIC Form  484. Our covering letter tells you how to do this.

Every SMSF Member signs the Member Minutes

As we have drafted the update, each shareholder signs to give their consent.

All the directors of the SMSF corporate trustee must be the members

Before you make the company the trustee of the Self-Managed Superannuation Fund (SMSF):

1. all the directors must be members of the SMSF
(but for a single-member SMSF, the corporate trustee may have a second director who is both:

• • not a fund member; and
  • not an employer of the fund member, unless related to the fund member).

2. all the members of the SMSF must be directors of the company

Example 1: John, Jeff and Mary are the current directors of the company. But Jeff is not a member of the SMSF. Jeff must resign as a director of the company before the company can be the trustee of the SMSF.

Example 2: Paul and Fiona are the only directors of the company. But their daughter Ainsley, together with Paul and Fiona, is a member of the SMSF. Therefore, before the company can be made the trustee of the SMSF, Ainsely is made a director, as well.

The old company must have a balance sheet of zero before you change it to an SMSF Special Purpose company

Your Special Purpose Company must not have any assets in it (other than the share capital for the shares). Its only job now is to be the trustee of the Self-Managed Superannuation Fund. It can’t do anything else.

To get to a zero balance sheet so you can turn the company into a Special Purpose Company, make sure:

1. the company owes no money
2. the company is not owed any money
3. no Unpaid Present Entitlements
4. no Division 7A loans
5. no obligations to anyone such as suppliers and family members
6. no tax obligations, both state and federal
7. done a final tax return and paid all taxes
8. your accountant is 100% certain that the ATO is NOT interested in auditing the company at some later date
9. owns no assets such as real estate
10. your accountant has prepared or signed off on the balance sheet showing everything as zero, other than the share capital of the company.

In short, the company has no assets, rights or obligations other than its original share capital. This is usually a small nominal amount.

If there is anything interesting, strange or exotic in your company’s past you are better to wind up the old company. And just incorporate a brand new Special Purpose Company. 

Even if you think you know the past history of your company, you probably do not. A safe course of action is to wind up the old company. And just incorporate a new company to be the trustee of your Self-Managed Superannuation Fund.

At the very least, talk with your accountant about reusing your old company.

Why do I need a Company Constitution?

An SMSF Special Purpose Company cannot have Replaceable Rules. It must have a Constitution.

Improvements to an SMSF special purpose company constitution

The SMSF Constitution you are building also updates your company’s internal rules and procedures. It complies with:

• Superannuation laws
• Superannuation Industry (Supervision) Regulations 1994 (Cth)
• Corporations Act

As well as converting your old company to a Special Purpose COmpany we also make these improvements:

1. Technology in an SMSF Special Purpose Companynvert company to a special purpose company

Technology has changed how a board can communicate with itself and its shareholders. When you update your Company to a Special Purpose Company we also update the Constitution. Your Constitution is updated to reflect how changes in technology affect your SMSF operations.

Traditionally board decisions are mailed out in physical form to directors.  However, email is a faster form of communication that is used by many Self-Managed Superannuation Funds to correspond with directors, shareholders and the SMSF members. Your updated constitution takes into consideration how instantaneous communication affects your SMSF members. Further, your constitution outlines how technology is used in meetings.

2. Email voting in an SMSF Constitution update

The SMSF directors and shareholders can cast a vote regarding a meeting. Do it either online or through personalised voting forms. Members do not need to attend the meeting and can appoint a proxy. Your new Constitution improves meeting efficiency.

3. Single Directors for an SMSF with only one member

The Corporations Act permits sole director companies. You now only have to have one director for your company. Before this time, you had to have a minimum of two directors.

Your new Constitution allows you to have a single director.

4. Self-Managed Superannuation Funds may have a single member

An SMSF is permitted to have a single member. But:

• • if you do not have a company you have to have a second human trustee (generally who is a family member or a person you have no employment relationship with); or
  • a corporate trustee. And that corporate trustee only needs to have one director. That one director is you. For example, Mavis is the sole member of her SMSF. Then Mavis is the sole director of her SMSF corporate trustee.

4. Who is the shareholder of the Special Purpose Company?

The Superannuation rules are silent on who the shareholder is of your converted Special Purpose Company. Usually, it is all the members of the SMSF. This helps with succession planning.

But each member should also consider signing a Binding Death Benefit Nomination. And if you want your superannuation to remain in the super environment after you die talk to your accountant and financial planner about a Reversionary Pension.

Faults in old SMSF Constitutions and Memo & Articles of Association

Australian companies created before 1 July 1998 had a ‘Memo & Articles of Association’. Like old Constitutions, your Memo & Articles of Association still operates but not well. Like old Constitutions, faults with the Memo & Articles of Association include:

1. Mandatory AGM each year

Requiring an Annual General Meeting (AGM). However, the law no longer requires an AGM for Pty Ltd companies. No one has AGMs anymore. But if you don’t, under your old rules, then your company is non-compliant. This is for both taxation and SMSF laws. Your new Constitution ensures that you don’t have to have AGMs.

2. Only do as permitted

Stating a ‘list of objects’. This is the purpose of the company. E.g. ‘sell fishing tackle and retail’. This was never a good idea for any company. It is especially not appropriate for a special purpose company. Your company is acting ‘ultra vires’ if it does not follow its old fashion ‘list of objects’. It is acting outside its powers. Again, your company is non-compliant. Legal Consolidated’s Constitution allows you to do comply with the SMSF rules – and more.

3. Perform out of date and illegal actions

Requiring illegal actions. Instead, we update the company constitution to allow these correct powers:

* exercise corporate powers
* issue and allot shares
* not avoid liability (a very strange requirement)
* transfer shares
* vote and proxies
* appoint directors and company secretary
* conduct general and director meetings
* sign bank documents, loans and mortgages (however this may be useful because banks often cannot enforce a loan made by a company that is still working under the old Constitution or M&A)
* allow alternative directors for ‘central management and control’ if the members live outside of Australia for an extended period

Build this document to transform your old company into a ‘Special Purpose Company’ so it can operate as trustee of your Self-Managed Superannuation Fund. You pay lower ASIC fees.

Who pays the annual ASIC fees when the company is a trustee of an SMSF?

Each year ASIC requires that you pay a fee to keep your Australian company registered. This is on the company’s birthday. (This is the day your company was originally registered with ASIC.) ASIC charges a lot of money for the yearly registration. However, when your company is a:

1. Special Purpose Company; and
2. the company is only being used as trustee of your SMSF 

the yearly ASIC fees are substantially reduced. This is the only value in converting your old company into a Special Purpose Company. You save on the ASIC fees. (It is also best practice to only use the company for one purpose. This is the corporate trustee of your SMSF. So why would you not want to get ASIC’s lower fee?)

Your SMSF Fund pays the annual ASIC fees for the Special Purpose Company.

For more legal advice telephone us. We are a law firm. We can help you answer the questions to convert your old company into a Special Purpose Company.

Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
Australia wide law firm Replace a Special Purpose Company Constitution Replace a Special Purpose Company Constitution
39 Stirling Highway, Nedlands, WA 6009
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