Trading Trusts have historical been utilised to provide flexibility for tax planning purposes. While they have come under scrutiny for situations where their use has been abused to push beyond the reasonable tax boundaries, they are still a valid structure to provide a business or trading activity with a flexible base.
The traditional trading trust is one which incorporates a limited liability company as the trustee for the trust, with the trust itself holding the business or trading activity. The use of the company as trustee is a way to provide greater protection to people administering the trust, because they have the added protection of the limited liability status of the trustee company.
The implementation of a Trading Trust is often also considered with regard to other structure within a person’s overall empire, and they are often linked directly with passive trusts to allow for ease of distribution of profits to those other entities.
When incorporating a trading Trust it also highly recommended that the trustees take due consideration of what the entity is intended to carry out in terms of business activity, and careful documentation should be made of those intentions. This then provides a sound reference point for what the trust is there to achieve, and provides guidance to future directors of the trustee company as the structure may change over time in terms of its controlling directors and shareholders.