Reading time: 4 minutes

While running a business using a company structure has a number of benefits, adding an additional level to your structure, for example by having your shares in the company held through another company or through a trust, can produce further benefits. This article sets out why business owners should consider holding their shares in an operating company through another company or a trust.

Operating a Business through a Company

Operating your business using a company has a number of benefits including:

  • As a company is a separate legal entity, its shareholders will generally not be personally liable for the debts of the company. Directors of a company do however have certain duties imposed upon them which should also be considered;
  • A company can be established relatively quickly, but there are costs involved with its incorporation and maintenance; and
  • Companies are taxed at the flat company tax rate of 30%, but when profits are distributed to shareholders, the dividends are taxed at the shareholder’s marginal rate. However, since the company has already paid tax on the profit, the shareholders will receive a credit to reflect the amount of tax already paid by the company.

How Should I Hold My Company Shares?

Once you have decided to operate your business using a company, you will then need to decide how the shares in that company will be held. Company shares are usually held in one of three ways:

  • in a person’s individual capacity;
  • through a second company; or
  • through a trust.

Holding shares other than in your individual capacity can provide additional benefits, such as further limited liability and tax advantages, but there are additional setup costs to consider.

Why Hold Shares Through a Company?

The key benefit to holding your shares through a second company is that, if the corporate veil of the operating company is pierced and its shareholders are exposed, having a limited liability company as your shareholding entity (rather than you personally) will help protect your personal assets.  

The big disadvantage to owning your shares through a company is that when the company sells those shares it will not be eligible for the 50% capital gains tax discount (which is generally available to individuals and trusts).

Using a holding company will require the incorporation of an additional company and associated costs, but it can be more affordable than using a trust, especially if the trust has a corporate trustee.

Why Use a Trust?

Unit trusts and discretionary trusts are commonly used to hold shares. The trustee of a unit trust holds the trust assets for the unitholders in proportion to the specified number of units that they hold. Alternatively, a discretionary trust (often referred to as a family trust) does not specify how trust income is to be distributed amongst the beneficiaries; it is to be distributed at the complete discretion of the trustee(s). This allows for flexibility regarding income distribution and can have favourable tax consequences, for example, if you were to distribute dividends under the trust to lower income earning family members. By holding your shares through a trust, you may also be able to access the 50% capital gains tax discount earned when selling the shares provided that they have been held in the trust for over 12 months. Companies are not eligible for this discount.

When setting up a discretionary trust, you will need to consider whether you wish to appoint an individual or corporate trustee. While a corporate trustee allows for additional protections (in particular limited liability), this requires the incorporation of another company and therefore increases your setup and maintenance costs.

Key Takeaways

Holding shares in your operating company through a second company allows for greater asset protection whereas shares held through a discretionary trust may provide greater tax benefits. You may even choose to combine these models by holding your shares in the operating company through a trust with a corporate trustee.

When setting up a complex or multi-faceted business structure, it is always recommended to seek legal and tax advice. Want to discuss your structure with a business structuring lawyer? Call us on 1300 544 755.


Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards