Company trust - understanding them and their purpose

Getting your head around company trusts can be a bit tricky. But let’s give it a go.

It may help if you think of a company trust as a big piggy bank, that a company creates to hold things like money, property, or stocks.

This piggy bank is managed by someone called a trustee who makes sure everything is safe and tries to make the piggy bank grow by investing the money or buying more property or stocks.

The people who benefit from the piggy bank are called beneficiaries. They might be the owners of the company (shareholders) or the employees. The beneficiaries get to share in the money or other things inside the piggy bank.

The piggy bank is different from the company itself, so if anything happens to the company, the piggy bank is still safe.

The trustee also has to report regularly to the beneficiaries to tell them how the piggy bank is doing.

We hope this helps. We’re going to go into a little more detail and the regulatory aspects of company trusts, so come with us.

What is a company trust?

A company trust, also known as a corporate trust, is a type of trust that is created by a company for the benefit of its shareholders or bondholders. The purpose of a company trust is to manage certain assets of the company, such as securities, property, or other investments, in a separate legal entity that is managed by a trustee.

In summary, a company trust provides a way for a company to hold assets on behalf of its beneficiaries while allowing a trustee to manage those assets in the best interests of the beneficiaries.

Under this business structure, the trustee of a company trust has legal obligations and duty to act in the best interests of the beneficiaries, which in this case would be the company’s shareholders.

The trustee decides how it will manage the assets held in the trust, make investment decisions, and distribute the income or benefits from the assets to the beneficiaries.

What is the purpose of a company trust?

The purpose of a company trust is to hold and manage assets on behalf of its beneficiaries for their benefit and to better manage risk and ensure asset protection from potential legal or financial issues that could arise within the company itself.

Some common purposes of trust business structures include:

Protecting assets: A company trust can be used to protect assets from creditors or to separate personal assets from business assets.

Tax planning: A company trust can be used to reduce taxes by transferring assets to the trust, which can then distribute income and gains to beneficiaries in a tax-efficient manner.

Estate planning: A company trust can be used as part of an estate plan to transfer assets to future generations or to provide for beneficiaries who may not be able to manage the assets on their own.

Employee benefits: A company trust can be used to provide benefits to employees, such as pensions or retirement plans.

Charitable giving: A company trust can be used to support charitable causes by donating assets to a charitable organisation.

How does a company trust work?

OK, we’ve learnt a lot about what it is and its purpose but let’s now explore how it works. This should help you to understand a company trust as a business structure better.

Here’s how a company trust typically works:

1. The company creates a trust agreement

The company, also known as the corporate trustee, creates a trust agreement that outlines the purpose of the trust, the assets that will be held in the trust, and the beneficiaries who will benefit from the trust deed.

2. The company transfers assets to the trust

The company transfers assets, such as shares of stock or cash, to the trust.

3. The trustee manages the trust assets

The trustee manages the assets held in trust, to generate income or increase the value of the assets.

4. The beneficiaries receive benefits from the trust

The beneficiaries receive benefits from the trust, such as dividend payments or the right to purchase company shares at a discounted price.

5. The trustee reports to the beneficiaries

The trustee is required to provide regular reports to the beneficiaries, informing them of the status of the trust assets and any changes to the trust.

What does it mean if a company is a trust?

A company that is organised as a trust is typically managed by a trustee who is responsible for managing the assets of the company for the benefit of the company’s beneficiaries. This trustee may be a person or an organisation, such as a bank or financial institution.

The assets held in trust by the company may include stocks, bonds, real estate, or other investments.

The trustee is responsible for managing these assets, making investment decisions, and distributing the benefits from the assets to the beneficiaries.
Going back to our simplistic example in our introduction, as a business structure, the company is responsible for looking after the assets in the piggy bank.

What is the difference between a company and a trust?

As a business structure, a company and a trust are two different types of legal entities that serve different purposes.
One key difference between a company and a trust is its purpose.

A company is created to conduct business activities and generate profits, while a trust is created to manage and distribute assets to its beneficiaries.

The second difference is the ownership structure. A company is based on share ownership, while a trust is owned by the beneficiaries who benefit from the assets held in the trust.

Finally, the liability of the owners (or beneficiaries) of a trust is generally not limited, meaning that they may be personally liable if something goes wrong.

What is the difference between a company and a family trust?

You’ve probably heard the term family trust.  So how does this fit in with a company?

Again, a company and a family trust are two different legal entities that serve different purposes.

What is a company?

A company is a separate legal entity that is created to conduct business activities. It has a separate legal existence from its owners (called shareholders), and it can enter into contracts, own property, and sue or be sued in its name.

The shareholders of a company have limited liability, which means that their assets are generally not at risk if the company is sued or goes bankrupt. The main purpose of a company is to generate profits for its shareholders.

What is a family trust?

A family trust is a legal entity that is created to hold and manage assets on behalf of its beneficiaries, who are typically family members.

The trustee of a family trust has a fiduciary duty to act in the best interests of the beneficiaries and manage the assets held in the trust according to the terms of the trust agreement.

This business structure allows the beneficiaries of a family trust to receive benefits from the assets held in the trust, such as income or capital gains.

There are three key differences between a company and a family trust with the main one being their purpose.

A company is created to conduct business activities and generate profits, while a family trust is created to manage and distribute assets to its beneficiaries.

Secondly, the ownership structure of a company is based on share ownership, while a family trust is owned by the beneficiaries who benefit from the assets held in the trust.

Finally, the liability of the owners (or beneficiaries) of a family trust is generally not limited, meaning that they may be personally liable if something goes wrong.

How can Sleek help you with your company trust?

Sleek can provide a range of professional advice and services to help establish and manage a company trust to streamline processes.

Here’s how –

Establishing the trust

Sleek can help establish your company trust by assisting with the legal documentation, including drafting the trust deed, appointing the trustee, and registering the trust with the relevant authorities.

Managing the trust

Once your company trust has been established, Sleek can assist with the ongoing management of the trust. This could include managing the trust’s assets, making investment decisions, and ensuring that the trustee is fulfilling your fiduciary duties.

Ensuring compliance

Sleek can help ensure that the company trust complies with all relevant legal obligations and regulations. This could include filing necessary tax returns, maintaining accurate records, and ensuring that the trust is operating within the guidelines set out in the trust deed.

Administration of your trust

Sleek can assist with the administrative tasks associated with a company trust, such as record-keeping, annual reporting, and communication with beneficiaries.

Technology platform

Sleek provides a technology platform that can help streamline the management of a company trust. The platform can be used to store and manage important documents, track assets and investments, and communicate with beneficiaries and other stakeholders.

Ready to get some help?  Let’s go, call a Sleek accountant now on +61 2 9100 0480 or schedule an appointment for your convenience using our calendar.