[ESTABLISHING A BUSINESS ENTITY IN AUSTRALIA]
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(a) Discretionary trusts Under a discretionary trust, the trustee has discretion to distribute the income and capital of the trust to any of the beneficiaries. It is common for discretionary trusts to have specified (or named) beneficiaries, as well as classes of general beneficiaries (which may include the family members of a named beneficiary). One of the benefits of a discretionary trust is that the trustee has the ability to make distributions which consider each beneficiary’s individual tax circumstances. Discretionary trusts are most often used for family-owned businesses. Generally, discretionary trusts are not an appropriate investment vehicle. (b) Unit trusts Under a unit trust, the beneficiaries (referred to as unitholders) subscribe for units in the trust. Each unitholder has an interest in the capital and income of the trust that is relative to the number of units that they hold. Unit trusts have the benefit of conferring a clearly defined entitlement and are often considered more
appropriate than a discretionary trust for non-family business ventures. Sole Trader This is the simplest form of business structure. A sole trader is an individual person who carries on business as an individual under their own name or under a registered business name. A sole trader is personally liable for all debts of the business. Managed Investment Schemes A managed investment scheme ( MIS ) enables a group of investors to contribute capital in consideration of acquiring a right in the benefits of the scheme. The contributions are pooled for investment (typically in a trust-based arrangement) or used in a common enterprise, in order to produce that benefit. Investors do not have day-to-day management of the MIS’ operations. Instead, a MIS is managed by a ‘responsible entity’ with an Australian Financial Services Licence ( AFSL ), acting in accordance with the scheme’s constitution and the Corporations Act. Where a MIS has 20 or more retail clients, it must be registered with ASIC, and its ‘responsible entity’ must be a public company with at least three directors.
ILN Corporate Group – Establishing a Business Entity Series
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