[ESTABLISHING A BUSINESS ENTITY IN NEW ZEALAND] 356
Trading trusts share many of the advantages and disadvantages of partnerships and joint ventures. Similarly trusts have no registration requirements and little statutory obligations and requirements, which mean benefits of
confidentiality and flexibility. However, trusts are not separate legal entities and do not have limited liability protection. Notable advantages and disadvantages of trading trusts are as follows:
Advantages
Disadvantages
Flexibility and freedom in structuring the trust and drafting trust deed – no statutory requirements. No registration requirements. No statutory ongoing administrative obligations. Confidentiality – no registration requirements whatsoever, and the trust deed can remain confidential. In the case of a corporate trustee, benefits associated with companies would apply in respect to the trustee, such as limited liability. Flexibility to introduce/raise new capital. Flexibility as to distributions of profits/income to beneficiaries; specifically, there are no solvency test requirements. From the beneficiaries’ perspective, trustees have fiduciary obligations to the beneficiaries and the trustee can be held personally liable for a breach of obligations and trust (from the trustee’s perspective, this can be mitigated by having a corporate trustee).
The trust does not have a separate legal identity. The trust cannot own property or assets in the trust’s name – ownership of all property or assets are recorded in the name of the trustee(s). No limited liability protection – the trustee (as effectively the agent of the trust) can be personally sued and held liable (however this can be mitigated by having a corporate trustee). Limited existence – a trust can only exist for a maximum of 125 years. Ongoing statutory administrative obligations, including: • Record keeping; • Updating property titles when trustees change. In the case of a corporate trustee, disadvantages associated with companies would apply in respect to the trustee. There are some perceived complexities and uncertainties relating to trust law from an overseas perspective. Tax: Tax losses cannot be passed through to beneficiaries (because they remain at the trust level).
Tax : The trust is not a separate entity for tax purposes, and the trust’s profit and income are therefore either taxed at a flat rate of 33% on income deemed trustee income or at a rated based on the beneficiary’s tax status on income
ILN Corporate Group – Establishing a Business Entity Series
Made with FlippingBook Ebook Creator