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Unit Trust - Buy assets or shares?

Discussion in 'Accounting, Tax & Legal' started by JJ7, 23rd Oct, 2011.

  1. JJ7

    JJ7 New Member

    23rd Oct, 2011
    Hi all, I am a law student who is desperate for help in the area of trusts. I have been browsing for a while and hoping someone can point me in the right direction with this question:

    A, B are husband and wife
    A,B & C are shareholders of Company 1
    Company 1 wants to buy Unit Trust 1
    A & B want to buy Trustee Company 1
    A & B basically want to take up an opportunity of an agency agreement which Trustee Company 1 has in favour of Unit Trust 1 (which is very flimsy in itself).

    What I am trying to get my head around (if the agency agreement was sound) is would it be better for Company 1 to purchase the business assets and not just the units of the trust? I understand that Company 1 can't be the sole beneficiary (anti-avoidance issues??). Or should it be set up so that the trustee and the company are beneficiaries? Which would mean that somehow A & B would have to acquire Trustee Company 1 first?

    I get extra confused because the agency agreement is between Company 2 and Trustee Company 1 (as trustee for Unit Trust 1).

    This is really doing my head in and if anyone can help it would be more than appreciated!!
  2. Terryw

    Terryw Well-Known Member

    9th Jun, 2006
    Hi JJ

    There are a few different issues to consider.

    1. Stamp duty.
    What sort of assets does the trust hold? There may be stamp duty payable on the transfer and transferring the units rather than the asset may work out cheaper. This will depend on the state the trust is governed by and/or the location of the assets. Try the Duties Act of the State.

    2. Risk
    Transferring control of the trustee company could be risky. Imagine if there are liabilities, now or future, which are associated with the company. This could be unremitted staff taxation, GST, or a contractual type dispute.

    Unit holders can also be liable with the trustee in some instances.

    But, if there is an agency agreement which you want to take control of then you may have to take control of the company which entered the agreement. But you will have to check the terms of the agreement for any clauses which may prevent this.

    The trustee company cannot be the unit holder because then there would be no trust - it would be holding units for itself.