How many companies should I set up?

Posted on October 01, 2021

When establishing family discretionary trusts, unit trusts, self managed superannuation funds and business structures, its tempting to use the one company as trustee of each entity. Every time you set up a new structure you may hear yourself saying “let’s appoint ABC Company as trustee again”.

We strongly encourage you to keep each entity completely separate and appoint a new corporate trustee for each entity or structure.

Example of the benefits of separate corporate trustees:

  1. Paul and Wendy are directors of ABC Company.
  1. ABC Company is the trustee of three different discretionary trusts and the family’s self- managed superannuation fund (SMSF).
  1. Each discretionary trust has a separate purpose and holds separate assets.
  1. The first discretionary trust called Family Trust 1, owns a commercial warehouse and earns rental income. ABC Company is the landlord of the commercial warehouse. Due to a dispute between ABC Company and the tenant, the tenant issues proceedings.
  1. The tenant is successful in its application and ABC Company is ordered to pay $500,000 to the tenant.
  1. ABC Company, on behalf of Family Trust 1 does not own assets of $500,000 to satisfy the Court orders and therefore the tenant issues proceedings to wind up the company and appoint a liquidator to take control of ABC Company’s assets.
  1. The liquidator seizes control of ABC’s bank accounts and realises that ABC does hold $500,000 to satisfy the Court orders. The money is held across various accounts in ABC Company’s name.
  1. Paul and Wendy are put to the time and trouble of explaining and evidencing to the liquidator that ABC Company holds various assets in different capacities.
  1. To ensure that the assets held by ABC Company for the other trusts or the SMSF are not exposed, Paul and Wendy call their solicitor for urgent assistance.

If you currently have control of multiple trusts, including a SMSF or are considering establishing new trusts, we recommend that you contact our office to discuss your personal circumstances. We work closely with your accountant to ensure that you receive comprehensive advice and that you establish strong structures which will protect you in the event of a dispute.