Should my business structure include a company?
Companies are very widely used in the operation of businesses in Australia.
From a risk point of view, a company has a separate legal existence distinct from its owners (the shareholders). Shareholders are therefore not prima facie liable for the company’s debts. However, if a shareholder is also a director, or has provided security for the company’s debts, he or she may be liable in those capacities.
A company structure, sometimes in conjunction with a trust, can also be used to protect business assets by placing those assets in a company separate from the operating company, thus protecting them from trading risk.
Generally, a corporate structure is a helpful structure for the growth of a business, as well as the full or partial transfer of the business. Incoming equity investors can buy shares, thus precisely defining their share of the business operation. A transfer of shares also provides an easier mechanism for transferring ownership than a transfer of the underlying business assets, such as when assets are sold by a partnership or sole trader.
Having said that, a transfer of shares carries with it the prior risks, obligations and liabilities of the company, including potential legal actions and debts.
Many financiers actually require a corporate structure for various reasons, including the ease of dealing with a company as opposed to, for example, members of a partnership, and the obligations placed on directors under the Corporations Act.
From a succession point of view, a company continues to exist even if one or more of its shareholders or directors sells their shares, dies or leaves the company. This means that ownership in the underlying assets can be transferred simply by transferring shares rather than the assets themselves, which may be numerous.
The tax position of companies needs to be taken into account, as there are differences in the tax treatment of capital gains in the hands of trusts, individuals and companies. There are also different tax rates that apply to companies and to individuals.
What risks do I have as a director of a company?
A director may:
- be liable for debts incurred by the company at a time when the company itself is unable to pay those debts as they fall due;
- be liable to compensate the company for any losses the company suffers from a breach of certain of the director’s duties to the company; and
- be subject to civil and/or criminal penalties in such circumstances.
As a matter of commercial practice, a bank, trade creditor or anyone else providing finance or credit to a company may ask a director of the company:
- for a personal guarantee of the company’s liabilities; and
- for some form of security over the house or personal assets to secure the performance by the company of its obligations.
The director of a company may, for example, be asked by a bank to give a mortgage over their house to secure the company’s repayment of a loan. If the company does not repay the loan as agreed with the bank, the director may lose the house.
Our Business and Commercial Lawyers
He helps clients deal with the practical, strategic and operational needs of their businesses, conservation of their assets, activating community and philanthropic interests and planning for succession to their estate over time.
Michael applies a multidisciplinary approach in dealing with the challenges of achieving growth, asset protection, estate governance and succession. Methodologies finessed with experience are applied, paving a way forward for globalising businesses as well as families making plans to manage their wealth for the benefit of subsequent generations.
Jeremy’s clients over the years have included corporates, banks, property developers/managers, financial advisory firms, representative bodies and private clients.
Proficiently tri-lingual, Clarence is an experienced Private Client lawyer who is skilled in working with clients of diverse backgrounds and has extensive knowledge of business dynamics and trade practices. He has acted in or advised on disputed matters for clients with an Asian background including Singapore, Malaysia, South Korea, Taiwan, Hong Kong and mainland China.
Trusts disputes and Litigation – Clarence has represented large-scale international companies in Trade Practice and fraudulent activity matters. He has represented individual clients in relation to caveats, partnership disputes, contested estates and injunctions.
Commercial Law – Clarence helps clients deal with their wealth preservation and succession objectives for their commercial enterprises. He works for a diverse range of manufacturing distribution and retail market-focused businesses. Clarence also helps his clients deal with the legal issues that flow from the operations, management, planning and decision making processes as well as ownership of their commercial enterprises.
- Advising on business succession planning.
- Advising on tax implications in estate planning and property law such as stamp duty concessions, land tax and capital gains tax.
- Assisting clients with residential and commercial conveyancing.
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- Drafting and settling discretionary trusts.
As a fluent Hindi speaker, Zabina has the capacity to assist clients from the Indian community.
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