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Can A Trust Own Shares In A Company? (2019 Update)

Can A Trust Own Shares In A Company? (2019 Update)

Are you considering starting a trust to better organise the ownership of your company? Read this article to see whether it's possible and how to do it.

21st June 2019

Trust is a relationship where one party (the trustee) holds property for the benefit of someone else (he beneficiary). Trusts can exist in a number of ways and this includes company ownership. A common question that is often asked revolves around what property can be held on trust. In this article, we’ll explore whether a Trust can own shares. We’ll also discuss what this means for the company, the trust itself.

Can A Trust Own Shares In A Company?

Technically, a trust cannot own shares in a company as it is not a separate legal entity. A trust is simply a relationship. However, this changes when we think about trustees and what they can hold for beneficiaries.

A trustee can own company shares for the benefit of beneficiaries.

Example

Jane Doe is the trustee for the Smith family trust. She is therefore the person who holds all property for the beneficiaries. The Smith family trust cannot itself own shares. However, Jane can. Jane still must comply with all her duties as a trustee.

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Advantages of holding shares on trust

There are a number of advantages for holding company shares on trust.

These include:

Asset Protection

Since the shares are legally owned by the trustee, there is scope for asset protection from third party creditors of beneficiaries. This mean it will be harder for a trustee to mismanage the shares, or act in a way contrary to the beneficiaries’ interests.

Tax Planning

Due to the structure of a trust, a trustee can distribute income to the beneficiaries at their discretion.Therefore, if there are multiple beneficiaries, the trustee can select the beneficiary with the lowest marginal rate. This can be used to minimise tax obligations on assets that the trust holds, including company shares.

Ease of Succession

The structure of the trust allows for succession plans to be easily implemented. Control of the trust may be passed on to the next generation without triggering taxes such as capital gains or stamp duty.

Individuals looking to establish a trust for the purpose of holding shares should be mindful of the potential disadvantages of adopting this approach.

Tax Implications

While there are tax advantages that arise out of using a trust, it does have its limitations. Minors are taxed at the highest marginal rate unless they are genuinely working for a salary. Further to this, any income that the trustee does not distribute by 30 June (the end of the current financial year) is taxed at a penalty rate.

Final Thoughts

The main advantages of holding shares in a trust are the tax benefits and asset protections for the beneficiaries. Overall, these advantages outweigh the disadvantages. A trust can be a great way to manage your finances and property – and this extends to companies.


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Author
Zachary Swan

Zac is a consultant at Lawpath, Australia’s largest and fastest growing online legal platform. Since joining Lawpath, Zac has assisted 1000s of startups and small business’s with their legal needs.