Trading company owned by a family trust, with a corporate trustee: how the structure works
A short whiteboard explainer of a common small business structure: a trading company owned by a family trust, with a company acting as trustee.
Read the full articleCompany & trust setup
Transcript
Intro
Let’s look at a common structure for a small business: a trading company owned by a family trust, with a company acting as the trustee.
The individuals
It starts with the individuals. Usually the family members behind the business.
Corporate trustee
They set up a company to act as trustee. The individuals are its directors and shareholders, so they control the trustee company, and through it, the trust.
Family trust
The trustee company runs the family trust, which is a discretionary trust. The individuals, and often other family members, are its beneficiaries.
Trading company
Rather than the individuals owning the business directly, the family trust owns all the shares in the trading company. The trading company runs the business, and the individuals usually sit on its board as directors.
Income flows
When the business makes a profit, the trading company can pay dividends up to the trust. The trustee then decides each year how to distribute that income among the beneficiaries.
Why use it
So why use this structure? The shares are held by the trust, not by the individuals personally, which can help with asset protection. A corporate trustee limits the trustee’s liability, and makes changes of control simpler over time. And the discretionary trust gives flexibility in how income is distributed each year.
Close
That’s the structure in a nutshell. The individuals control the trustee company, the trustee company runs the family trust, and the trust owns the trading company. This is general information only, and not financial or tax advice. Speak with your accountant before setting one up.
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