8 June 2022
Written by: Costa Stathis
The Australian Bureau of Statistics revealed for the 2020 – ‘21 period there were 364,480 new business entries, and 277,674 business exits in the Australian market, recording a net change of 87,406 new businesses in Australia.
It has been speculated for the 2021 – ‘22 period that the growing business boom (notably in small business) is set to continue leading our economy forward and supporting our labour market in Australia.
Starting your own business can be both challenging and extremely rewarding. It is important that prior to any commercial or investment venture being embarked upon, consideration is given to the most appropriate business structure to conduct the business.
When determining the most appropriate business structure to run your business, it will largely depend on the type of business, and the scale you intend to operate the business.
The most common business structures in Australia are:
Whilst the business structure of a sole trader, partnership, or company is most commonly considered to conduct a business, we are seeing a growing number of clients electing to setup and operate their business through a trust structure.
Common questions we are asked in relation to a trust is: what is a trust? how can a trust be used? how do you appoint a different trustee? What should we consider when changing a trustee?
In this article, we provide an introductory response to some of those questions that we are commonly asked.
What is a trust and who is involved?
Well, what is a trust? a trust is not technically a separate legal entity, it is a fiduciary relationship recognised at common law which imposes obligations on certain parties to act in a certain manner, those parties being:
In simple terms, a trust is whereby a person or entity leaves income or other property in the possession of a trustee to be distributed to a beneficiary which is ordinarily recorded in a trust deed, or an individuals Will (testamentary trust).
There are various types of trusts which are used for different purposes, whilst not an exhaustive list, the most common types of trusts are:
Whilst trusts are largely governed by common law, the legislation that governs trusts in Queensland is the Trusts Act 1973 (Qld) (the Trusts Act), with the other states of Australia having their own respective legislation (Trustee Act 1925 (ACT), Trustee Act 1925 (NSW), Trustee Act 1893 (NT), Trustee Act 1936 (SA), Trustees Act 1962 (WA).
Why use a trust structure?
We are seeing a growing number of individuals and entities requiring our assistance with the creation of trusts for commercial and investment purposes.
The growing popularity for the use of trusts to hold and distribute income or other property is largely attributable to the many benefits a trust can provide, including but not limited to:
Can we change a trustee?
We have previously provided a guide in relation to a trustees duties, powers, and liabilities (The quick guide to the duties, powers, and liabilities of being a trustee: https://www.jhklegal.com.au/the-quick-guide-to-the-duties-powers-and-liabilities-of-being-a-trustee/.),
When appointing a trustee, section 11 of the Trusts Act allows up to a maximum of four (4) trustees to be appointed per trust. If you are unable to perform the duties of a trustee, section 12 of the Trusts Act provides the power to appoint an original or substituted trustee upon the trustee:
When changing a trustee, the correct steps must be followed to ensure the trustee has been properly discharged. Consideration must be given to section 14 of the Trusts Act which states that in circumstances whereby two or more individuals are appointed as a trustee, the retiring trustee is not discharged from all or any part of the trust duties reposed in the trustee, unless there is:
to perform the trust or part of the trust from which that trustee desires to be discharged.
How to change a trustee
In order to change a trustee, the process is relatively simple:
When changing a trustee, s 117 of the Duties Act 2001 (Qld) provides an exemption from any transfer duty that may be payable resulting from a change of trustee.
Issues to consider
Some additional issues to consider when changing a trustee, is to ensure:
How can we help you?
JHK Legal can assist individuals and entities to identify the most appropriate business structure, and more particularly assist you in achieving your commercial or investment objectives.
We have extensive experience on trust related matters including drafting or settling a trust, changing the trustee, terminating a trust, or disputes around trustee duties, trust deed interpretation, negligence, or other trust related matters that may arise.
If you would like to have a discussion in relation to your business structuring or any other legal needs, please do not hesitate to contact us for assistance.