What is the main source of law authorising this entity form?

Most states and territories have legislation which deals with the powers and responsibilities of trustees.)

Otherwise, trusts are governed by common law and the trust deed.

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

A trust does not have legal personality and must have a trustee appointed who holds legal personality (an individual(s) or a corporation).

(Maximum) period of existence

Most states and territories in Australia limit the maximum period of existence of a trust (e.g., 80 years).

Governing document(s)

A trust is governed by a trust deed, a document that sets out the terms of the trust. The Corporations Act applies to corporate trustees.

Liability of incorporators / shareholders

Trustees are personally liable for the debts of the trusts they administer but are usually entitled to be indemnified out of the trust property for liabilities incurred in the proper exercise of the trustee's powers. Beneficiaries, settlors, and appointors do not incur personal liability for the debts of the trust.

(Governing) bodies

Most trusts are either:.

• “discretionary” or “family” trusts: where the trustee decides how and when to distribute capital or income and to which beneficiaries. Beneficiaries have no fixed or determined entitlement;
• “unit” trusts: where beneficiaries hold a unit in the trust (akin to a share in a company). Units give determined ownership rights in the capital and/or income of the trust.

Other particularities

N/A.

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

A trust can acquire assets from, or an interest in, foreign entities.

Foreign entities can acquire the business assets from a trust, or where the trust is a unit trust, units in the trust.

Such acquisition may be subject to the approval from the Foreign Investment Review Board, depending on the nature and scale of the business.

Can this type of entity be publicly listed or held?

Generally, a trust cannot be listed unless it is a public unit trust.

Can this type of entity be used for a non-profit or charitable organization?

Trusts can provide a vehicle for the establishment of non-profit or charitable organisations.

Give a brief summary of the process of incorporation, formation, or organization, including:

Main documents required

Main documents and steps:

• trust deed;
• a trust deed must be stamped for duty upon establishment.

 

Involvement of notary, company register, governmental authorities

Trusts can be established quickly once the trustee and beneficiaries or unit holders have been identified.

Timing (estimate)

Timing depends on the complexity of the trust. Where the trust is a unit trust that will be wholly owned by a foreign parent, it can be established within a few days. More complex arrangements (e.g., a trust for a charitable purpose) can take more time.

Main costs, including registration and similar fees (excluding legal fees)

The main costs are legal or professional fees in preparing the trust deed. Duty (previously known as stamp duty) in most states is a nominal fee.

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

N/A.

Minimum number of incorporators / shareholders and residency requirements

• All trusts must have at least one trustee.
• A unit trust must have at least one unitholder.
• A discretionary trust must have at least one beneficiary (or class of beneficiaries).

Minimum number of directors (or other applicable officers) and residency requirements

• A trust must have a trustee.
• Where the trustee is a corporation, that corporation must meet the requirements for an Australian company.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

To establish a discretionary trust, a nominal amount of property must be held on trust for the beneficiaries (e.g., $10).

Where the trust is a unit trust, there must be an amount of paid-up capital (i.e., $0.01).

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

If there is a corporate trustee, the directors will be subject to the same residency requirements as an Australian company (i.e., at least one director must ordinarily live in Australia).

An individual trustee does not need to be a resident of Australia, although the trust may be deemed to be a resident for tax purposes.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

A trading trust requires a Tax File Number and Australian Business Number which can be obtained by application to the Australian Taxation Office and the Australian Business Register respectively.

Depending on the nature and scale of the trust’s business , it may also be required to register for GST.

What is the title of the applicable company registry?

Other than a public unit trust, there is no publicly available register for trusts.

If a trust has a corporate trustee, the trustee’s information will be publicly available.

What types of information must be filed at the (company) register, and which of them will it be publicly available?

The following information is publicly available:

• Liens and encumbrances are registered on a publicly available database, the Personal Property Securities Register.
• No other information about trusts is publicly available.
• If a trust has a corporate trustee, the trustee’s information will be publicly available.

Liens and encumbrances are registered on a separate publicly available database, the Personal Property Securities Register.

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The trust’s executive body is the trustee(s) who can be an individual or a company (corporate trustee).

The trustee is responsible for the administration of the trust.

How are the members of the executive body appointed, dismissed and replaced?

Trustees are initially appointed on establishment.

A trustee can be replaced and a new trustee appointed in accordance with the terms of the trust deed.

Certain states have legislation that provide for the appointment and removal of trustees where there is no express power in the trust deed.

Is it possible to appoint corporate directors or must all directors be natural persons?

A trustee may be a corporate entity.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

Where a trustee is a corporate entity, the Australian company requirements will apply.

Otherwise, a trustee is responsible for the administration of the trust and these powers cannot be delegated.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

Where the trust is a discretionary trust, there are no owners, and the trustee will distribute the assets and income of the trust to the beneficiaries in accordance with the trust deed.

Where the trust is a unit trust, the unit holders are the owners.

Beneficiaries and unitholders are not liable for the operation of the trust and have limited responsibilities.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

If the trustee is a corporate trustee, the same majority and quorum requirements will apply pursuant to the company's constitution and the Corporations Act.

Otherwise, the trust deed will provide for any decision-making requirements.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

There are no special governance regimes unless specified in the trust deed.

Certain industries also impose additional requirements on a trading trust, for example, a financial services business will be required to obtain an Australian Financial Services licence and comply with the obligations imposed on a licensee.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

Trustees and beneficiaries must submit a tax return to the ATO each financial year reporting all income received by and from the trust.

Business Activity Statements (which report on GST and certain other withholding taxes) also need to be filed and are typically filed monthly or quarterly.

Is the entity permitted to determine its own financial year?

A trust cannot determine its own financial year unless it is a unit trust that is wholly owned by a foreign parent, in which case it can apply to have the same financial year as its parent company.

Is the entity subject to any statutory (external) auditor obligations?

Generally, no, although depending on the nature and scale of the trust, an audit may be required.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

A discretionary trust must appoint a settlor who will sign the trust deed. The settlor is usually an individual unrelated to the beneficiaries of the trust, such as an accountant or lawyer.

The Trust Deed can prescribe the position of appointer of a discretionary trust, who will have the power to appoint or remove the trustee.

A unit trust does not have a settlor, as unitholders subscribe for the original units. Subject to the terms of the trust deed, the unitholders usually remove and appoint trustees by vote.

What is the title designated for ‘ownership interests' (e.g. shares, quota, interests, membership)?

A unit trust will have a certain number of units on issue that are akin to shares.

Discretionary trusts do not have ownership interests.

Are different classes of ownership interests possible? If so, what are some examples of different classes?

Unit trusts can allow for different classes of units that have certain rights attached, including preference units, redeemable units, non-voting units, and units that do not carry any rights to distributions or profit.

What documentation is required for the transfer of ownership interests?

Unitholders of a unit trust can transfer their interests in the trust in the same way that shares can be transferred.

A formal record of the transfer should be provided, and the unit trust deed may have pre-emptive provisions that need to be complied with.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

Duty may apply in some states, in particular if the trust owns land.

Are there any applicable stamp duties imposed when transferring ownership interests?

Duty may apply in some states, in particular if the trust owns land.

How are shares issued? (including information on payment obligations, registration requirements)

Units can be issued in accordance with the trust deed.

Further information on equity contributions

Units can be purchased for non-cash contributions or can be partly paid.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

Capital reductions for units trusts must be completed in accordance with the trust deed.

Any requirements with respect to distributions to shareholders?

The trust deed will set out how distributions can be made, and any fixed entitlements.

Trusts need to distribute all of their income in any year, otherwise it will be taxed at the highest marginal rate.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes. Unitholders of a unit trust can enter into a unitholders agreement to further regulate their relationship.

 

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

A corporate trustee will have annual maintenance fees.

Otherwise, there are no ongoing costs or annual maintenance costs.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

A trust is required to distribute its income each year, and the distributions are taxed in the hands of the beneficiaries or unit holders.

If income is not distributed it will be taxed at the highest marginal rate.

The Trust will be required to comply with certain withholding taxes.

Summary of any specific matters, e.g. recent or prospective major legal developments

No major legal developments are expected for the remainder of 2022 or early 2023.