Unit trust or company? Which structure is right for your new restaurant?

Although we suggest speaking to a lawyer and accountant to give you advice on the best business structure for you, it helps to have some information around your options.  Setting up a new restaurant is an exciting time but you want to make sure it is done properly and in a way that suits your personal circumstances. We are often asked whether a unit trust or a company is a better structure for businesses.  Both options have their advantages and disadvantages, legal obligations and tax requirements, and we will talk a little more about all that right here…

Why would I choose a unit trust structure?

A unit trust is where the assets of your business are held and administered by the trustee of the trust for the holders of units in the unit trust. The unit trust predetermines each unit holders’ entitlements for income, capital or both.

This structure is great for when you have one or more partners ready to put in money towards the new restaurant. The amount each puts in will directly affect their percentage of unit holding; and distribution of business income and capital to each person will be according to unit holding.

Unit trusts offer the important advantage of minimising income tax and capital gains tax whilst also protecting personal assets.

What do I need to do if I want to set up my restaurant using a unit trust structure?

As a first step, you should seek legal and financial advice.  Once you have decided that a unit trust is the best structure for you, we can assist with preparing a trust deed that will outline the purpose of the trust, obligations of trustees and unit holders, powers of the trustee, and identify the initial unit holders and trustees.

You will also need an Australian Business Number and may need to consider trademark registration.

The trustee:

You may like to incorporate a new company to act as the trustee of your trust and nominate unit holders as directors of the company. This is an extra cost to set up and run however has significant benefits:

  • Allows the unit holders (you and your partners in business) to be in control of the trust;
  • No change of trustee in the case of death/if one partner leaves the business;
  • Private assets cannot be confused with trust assets;
  • Ensures if the trust is sued or suffers a major loss the personal assets of individual trustee/s are not put at risk; and
  • Allows your restaurant to maximise after tax profits to grow the business.

This cost may be thought of as a relatively cheap form of insurance for yourself and the other owners.

Why wouldn’t I want a unit trust?

You are unable to distribute capital or revenue losses to beneficiaries. So if a loss occurs, (which is certainly possible, especially in your first year of running a restaurant) you cannot offset that loss against other assessable income.

Hmmm. And how about setting my restaurant up using a company structure?

A company has members (shareholders) who own the company, and directors who run it.

This structure will also protect your personal assets, and does allow you to offset your losses. Other benefits include:

  • Flexible business expansion prospects (you could in the future, list as a public company);
  • Limited liability;
  • Transfer of ownership by share transfer; and
  • Tax benefits afforded to companies.

What are the disadvantages?

A company is not a simple business structure; and also:

  • There are limited tax concessions available, for example Capital Gains Tax in relation to real estate/assets;
  • There is no tax-free threshold;
  • The money the business earns belongs to the company – and subject to income tax;
  • The directors are personally responsible for insolvent trading risks; and
  • There are ongoing costs and obligations.

What do I need to do in order to run my restaurant through a company?

You need to register your company, an ABN, business name registration and consider trademark registration. If there are a number of shareholders, you should also ensure you have a shareholders’ agreement.

If you have any queries about what structure suits you, and anything else you may need in setting up your business, please book a free 15 minute chat with us via our website.

This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation. 

Published Nov 22, 2018

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