Business and Corporate Structuring

Practice Areas > Business and Corporate Structuring

The business structure you use has consequences in three main areas:

• tax

• asset protection; and

• succession

The right structure for you will depend on the competing priorities of tax, asset protection and succession. 

Through our experience in commercial law and our unique succession planning process, mdp McDonald Partners have developed tremendous experience in restructuring businesses to enhance asset protection, reduce capital gains tax (CGT) liabilities and ensure that the business is the in best possible structure from a business succession perspective.

Tax

The tax consequences of your structure relate to:

• income;

• losses; and

• capital gains.

Your structure will determine the tax payable on your income.  For example, the income of a trust flows through to beneficiaries who then pay tax according to their own tax profile. Companies in Australia are taxed at 30% on profits.  However, if no dividend is distributed then no tax is payable by the shareholder.  If the profit is distributed via a dividend, then further tax may be payable by the shareholders according to their tax profile. 

Losses are trapped within a trust which means you cannot offset the losses against the profits in other entities. Losses are also trapped within a company and subsequent years profits may be offset against these losses.  Compare this with a partnership where the losses flow through to the individual partners and can be offset against the income. 

Capital gains in a trust flow through to the beneficiaries and capital gains discounts are available. Capital gains in a company are trapped as tax is payable at 30% plus an amount upon the distribution according to the individual's tax profile. Companies are not eligible for capital gains tax (CGT) discounts.

Asset protection

If you operate your business through a partnership, you and your partners will be jointly and severally liable for the debts of the business.  This means if the business turns sour, your individual assets will be available to your creditors. 

A company is a separate legal entity and the shareholders are not liable for the losses of the company. 

Similarly, the benefit of operating as a trust is that while the trust is not a separate legal entity, the trustee can enter into contracts and the beneficiaries of the trust are not liable for the debts of the trust. 

Asset protection is not just about the business structure you use.  Asset protection also involves estate planning and the interaction of your superannuation, your Will, restructuring your personal and business assets and long term financial planning.  mdp McDonald Partners will work with your accountant and your financial planner to develop a comprehensive asset protection and estate planning strategy that deals with your business and family issues in an holistic fashion.

Business and Corporate Structuring Publications

· Case Study: Burnie Airport Corporation