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  • #987877
    mr_plow
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    Hey guys,

    First time user on this forum – so go easy :) I am sure I will be back regularly!

    I am starting a business with 3 friends next month and I am trying to decide on the best way to structure my own assets for the future. The business is a start up, so essentially worth nothing, but one day… well you never know.

    Our business will be a Pty Ltd, am from all the reading I have done this is my thinking:
    1) My shares in the business will be owned by my personal Pty Ltd company (already set up)
    2) Initially I am sole director of my personal company (I have no wife/ family )
    3) I pay myself out of my personal company, but a minimal amount, any profits remain there
    4) In time I might transfer ownership of the business to a trust, if my situation changes

    Would be interested to hear feedback on this structure, it seems like logical way and it means for now I don’t have to set up a trust for now, as I have no need for it.

    Might be also worth bearing in mind its unlikely I will earn any salary from the company for first year (sounds like a great business eh!)

    Thanks!
    Al

    #1164693
    Entraction
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    Hi Al; sounds good to me – I think there may be a couple of things to consider;

    1) corporate tax at 30% is higher than personal income tax until somewhere around $180k, I think. of course bearing in mind that will be after all tax deductions, but indeed you don’t have to pay yourself a poverty line wage if your business can afford it, especially as personal income tax is quite low near the starting end of the spectrum. on top of that you get small automatic tax deductions on personal income tax as well, so you could well be paying next to no tax until you’re quite well off to the point where you probably should – but that’s a pleasant place to be in :)

    2) how are your friends getting involved in this company; as shareholders or employees? I would think carefully about share allocation as if there are some of your friends who are less motivated and drop out and all the shares were released right at the start, that person can just sit and wait for any returns as you can’t remove shares from them.

    anyone better qualified than me feel free to correct (which would be nearly anyone, haha).

    #1164694
    akagrp
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    Hi AL

    Without knowing your exact financial position or the industry startup is in, as a general rule it is never recommended to hold shares in one company via another company.

    The reason for this shares held by companies do not qualify for the 50% Capital Gains concession if shares are sold after holding them for a min 12months
    With 4 owners and a startup it is not uncommon that some shareholders may buy the shares of other shareholders who may want out

    Also in your case you will end up paying capital gains tax at 30% (based on current rates) when hou transfer shares to trust

    You also than have the issue if startup company makes profits and declares dividends they will be locked in company and your options in getting funds out would be to declare a dividend to shareholder in company 2 or salary will may not be best in maximising tax savings

    Also holdings shares in another company you are sole director/shareholder reduces your asset protection options

    If the startup company will be undertaking R&D don’t forget to access the R&D Tax Offset

    All the best with new startup

    #1164695
    mr_plow
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    Hi Guys,

    Thanks for the advice, to me it seems I might be better off holding the shares in a trust from the start as it allows me access to the 50% CGT concession.

    I am still struggling to understand the advantage of a trust if I am the only member?

    The trust also has quite high up-front costs considering the business may never make any revenue!

    With regards to releasing the shares – everyone is on a vesting schedule with a cliff, so if they leave early they are only entitled to a % to account for their time. Typically this is 1 year cliff + 4 year vest.

    Al

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