Should I Set My Business Up As A Trust Or Company?

Are you unsure how to structure your business to protect your assets, secure funding, or minimise tax? Choosing between a trust and a company can have long-lasting impacts on your finances and growth. Read on to discover the pros and cons of each structure and learn how to make the right decision for your business in 2025 and beyond.

Why Does Your Business Structure Matter?

If you’re starting a new business or looking for more flexibility in your established one, your legal structure is crucial. The right business structure can:

• Set you up for long-term success.
• Influence how you pay tax.
• Affect your asset protection and ability to raise capital.

Now is the time to revisit your structure to make sure it aligns with your business goals and personal circumstances. Both trusts and companies have unique advantages but also come with legal and financial responsibilities. Speak with your accountant before setting up or switching structures to avoid unexpected costs down the line.

What is a Trust?

A trust is an arrangement where a trustee (either an individual or a company) holds assets on behalf of chosen beneficiaries. You define the rules in a trust deed, specifying what a trustee can and can’t do.

Discretionary Trust

• The trustee has discretion in distributing income or capital to beneficiaries.
• Can decide who gets what share of the trust’s income late in the financial year, allowing a flexible, tax-effective approach.

Unit Trust

• The trustee must split the trust property into fixed units, similar to shares in a company.
• Beneficiaries (unitholders) subscribe to these units, giving them a fixed proportion of any distributions. ¹

Advantages of a Trust

Operating your business under a trust allows:

• Flexible Income Distribution: Great for family-run businesses where you want to split income in a tax-effective way.
• Potential for Tax Minimisation: Especially through discretionary trusts.
• Added Privacy: You can run your business under a trust without revealing beneficiary details publicly.
• Asset Protection: Beneficiaries do not own trust assets, which can shield those assets if a beneficiary faces bankruptcy (although units in a unit trust may be treated like any other asset). ¹

Trusts Can Help Minimise Tax

Both companies and trusts can access small business capital gains tax (CGT) concessions if they meet certain criteria (for example, under the $2 million turnover or $6 million net business asset value tests). However, trusts can often claim the 50% CGT discount for assets held at least 12 months, a benefit not available to companies. ³

Disadvantages of a Trust

Like any structure, some disadvantages come with operating as a trust:

• Mandatory Profit Distribution: Failing to distribute income each year can result in tax at the highest marginal rate.
• Ongoing Costs: Can be expensive to set up and operate, including TFN applications and annual returns.
• Challenges with Borrowing: Lenders can be wary, making it harder to secure funding.
• Limited Life Span: A trust typically expires after 80 years.
• Trustee Liability: Trustees are personally liable for debts unless the trustee is a company, which offers limited liability.
• No Distribution of Losses: Losses generally stay within the trust and cannot be passed on to individuals. ¹

What is a Company?

Unlike a trust, a company is a separate legal entity that lasts forever and is not limited by the statutory time limit of 80 years. Being a legal entity means the company has the same rights as a person and can incur debt, sue and be sued.

Companies are controlled by its members and shareholders and are operated by managers, directors or agents. This means the company can continue to exist, regardless of the circumstances that may arise with the directors or shareholders. The structure allows the company to be subject to its debts and liabilities, and gives the company the right to retain property in its name. ²

Advantages of a Company

A company structure may be more beneficial for businesses looking for asset protection and access to tax benefits. Other advantages include:

• Potentially Lower Tax Rate: Companies often pay lower tax on profits than individuals in higher tax brackets.
• Share Flexibility: You can issue or cancel shares, adjusting ownership stakes over time.
• Investor Appeal: Venture capitalists and lenders usually prefer share-based structures.

Asset Protection

Under a company structure, your legal identity is separate from your business and as a result, it will be your company, not you personally, that is responsible for your business’ contracts and risks. This means that if the business cannot pay off its debts, the assets of the company owner will be protected. However, if the directors purposely act to defeat creditors or trade when they know they can’t pay their bills, the directors may be liable. ⁴

Disadvantages of a Company

While there are clear advantages of operating as a company, the disadvantages are:

• Setup and Maintenance Costs: You’ll need to pay annual ASIC fees and possibly invest in ongoing legal/accounting advice.
• Losses Stay Within the Company: You can’t offset them against your personal income.
• Strict Reporting Requirements: Companies must comply with corporate governance rules, which can be time-consuming.
• Shareholder Control: Shareholders can vote out directors, leading to possible leadership changes. ²

Key Differences: Trust vs. Company

• Separate Legal Entity: A trust is not a separate legal entity, whereas a company is.
• CGT Discounts: Trusts can access the 50% CGT discount; companies cannot.
• Investor Preference: Companies typically have an easier time raising funds.
• Lifespan: Trusts expire after 80 years; companies can exist indefinitely.
• Taxation: Companies pay a set corporate tax rate (often 25% or 30%), while trusts distribute income to beneficiaries who then pay tax at their marginal rates.

Should I Run My Business as a Trust or Company?

With any business structure, there are legal and financial consequences for the business. And what business structure you choose will depend on your personal circumstances and what you want for your business.

• You need flexible profit distribution and potential 50% CGT discounts? Consider a trust (particularly if running a family business).
• You want outside investment or plan significant R&D spending? A company is often best.
• You have concerns about personal liability? Both can protect your personal assets—trusts require a corporate trustee for stronger protection, while companies are separate legal entities by default.

Before you decide on how to best structure your business, make sure you consult your accounting and tax advisors. Your accountant will be able to help you weigh the pros and cons of each structure and can answer any questions you may have. Get in touch with us today.