The business structure of any small or medium enterprise (“SME”) plays a critical role in successful succession planning. To the extent possible, the most appropriate business structure should be chosen considering factors such as:
- implementation and administration costs;
- governance and management;
- tax (including with respect to income and capital);
- asset protection;
- sale achievability; and
- succession.
Sole proprietorships and partnerships involve personal liability for the owners and are also likely to be subject to tax in the event of the death of a sole proprietor or partner, where their share falls within the estate of the deceased owner. These are some of the reasons why these types of business structures are, in modern times, not as common.
As an alternative, private companies or trusts, are often selected as preferred structures in which to hold business interests.
For example, a structure for a simple business to consider where asset protection is important could be:
- the valuable business assets such as land, intellectual property are owned by an appropriate trust, and a corporate trustee is appointed;
- owning business assets in a different entity is often a prudent strategy to quarantine those assets from the trading (and often risky) activities of the business which are conducted in a separate entity;
- the shares of the trading company could be owned by one or more discretionary (family) trusts and business income dividends can then pass to those trust(s) where they can be distributed to beneficiaries at the discretion of the trustee;
- succession in the case of the corporate trustee takes place by gift of shares, while nomination provisions for successor appointers of the discretionary (family) trust(s) can be inserted in the appointor’s will; and
- the benefits of capital gains tax rollovers could be utilised in this type of business structure.
At Burke Lawyers, we are qualified to provide legal advice and services relating to your business structures, asset protection and succession planning. For more information, please contact our Commercial Division on supportteam@burkelawyers.com.au or +61 3 9822 8588.
