Legal Tip 196: Strategy: Personally Owning the Shares of a Bucket Company

Discussion in 'Legal Issues' started by Terry_w, 1st May, 2019.

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  1. Terry_w

    Terry_w Well-Known Member Business Member

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    Strategy: Personally, Own the Shares of a Bucket Company


    Generally owning shares in a company in a personal name is not recommended because of 2 main factors

    a) Bankruptcy, and

    b) Income tax

    If the shareholder becomes bankrupt the creditors will get the assets in the company by stepping into the shoes and of the bankrupt and becoming the shareholders.

    Also with owning in an individual’s name there is no flexibility with income distributions as dividends can only be paid to shareholders.



    But it can be a good idea to hold the shares in an individual name where there is no or very low risk of bankruptcy and there is no need to distribute the income.



    Naturally legal advice is needed as there are a lot of legal issues to consider, but below is an example of how this could work.



    Example

    Homer is going on in years and Bart thinks his dad has 10 years left in him, so he sets up a new bucket company with the shares of this company owned directly by Homer. Bart causes various trusts he controls to distribute to the bucket company so that when Homer dies Homer will leave the shares of the company to a Testamentary Discretionary Trust that Bart controls.

    Once the TDT holds the shares the bucket company can then pay dividends which can be directed to minor children via the trust.
     
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  2. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    If you have a disc trust in some cases it may also be a choice as shareholder. But would I setup a DT just for that...No. It could be done later if warranted and if Part IVA isnt then a concern.

    In other cases a company as shareholder in the bucket company may work too. eg A Pty Ltd owns shares in BucketCo B Pty Ltd. Bucket Co B Pty Ltd has accumulated profit and paid tax. It may pay a FF dividend to A Pty Ltd. And different shareholders maybe ? Companies dont get refund of franking credits but if A Pty Ltd paid a FF div to its shareholders they may be refundable (at present) and at least creditable. It may be one of the shareholders in A Pty Ltd is non-resident too.