B114 Week 5 Business Structures For Canvas
B114 Week 5 Business Structures For Canvas
B114 Week 5 Business Structures For Canvas
B114
Module 5: BUSINESS STRUCTURES
Part C: Companies, Trusts and Maori enterprises
Module 5 Learning Outcomes
2
Structures based on artificial legal persons
These structures are called corporations.
Definition:
3
Separate legal personality
4
Salomon v Salomon
5
Key features of a company
6
Advantages of the Corporate Form for
Business
• Perpetual succession of the company – the business can continue despite the death or
incapacity of shareholders or directors or managers
• Limited liability – the liability of shareholders is limited to the share capital – encourages
investment without say in management
• The assets and liabilities of the company are separate from those of shareholders or directors
o ease of growth of scale of operations – through the issue of shares to many investors
7
Advantages of the Corporate Form for
Business cont…
• Management under a board structure
– in small companies creditors may demand personal guarantees from directors / personal
property as security
• Exposure to taxation and regulation requirements specific to companies
• Incorporation is necessarily attended with formalities, loss of privacy and expense greater
than that which would normally apply to a sole trader or partnership
8
Trusts
NOT a separate legal entity but a “bundle of property rights”
Settlor Beneficiary
(Beneficiaries are equitable/beneficial owners)
A trust is generally established under a Trust Deed.
9
Parties to a Trust
Trustee looks after
property for the
Settlor beneficiary/beneficiaries
TRUSTEE
TRUST
Beneficiary Beneficiary
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Keech v Sandford
Keech
(Beneficiary)
• Lease (profitable) held on Trust
• Mr Sandford = trustee
• Landlord wouldn’t renew lease to Trust
• Mr Sandford took lease in his own name and started making profits
• Keech (beneficiary) sued Mr Sandford
• Court orders Sandford to give Keech all his profits (= account of profits)
Trustees
• Control and are responsible for the trust property (eg payment of rates on trust real
property)
o eg John Smith and Mary Smith and Fred Clever (the family
accountant) - as trustees of the Smith Family Trust
Settlor
An express trust can…. by a settlor who “clearly and with reasonable certainty”:
• indicates and intention to settle a trust
• identifies the beneficiaries (objects) or purposes of the trust, and
• identifies the trust property (subject matter).
Note: the “3 certainties” were always part of the common law even before the Trusts Act 2021
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Content of a Trust Deed
Content of Deed/Will
• Names of trustees and how replacement ones appointed
• Trust property
• Duration of trust
16
Trust Act 2021
• Clarifies and modernises existing trust law (previously much of was based on case law)
• The Act puts into law the duties of trustees and requires much greater transparency around
trust activity.
• The Act is not a complete code. It will co-exist with relevant rules of common law and equity.
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Trust as a vehicle for holding family
property/investments
• Share family assets between family members
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Trading Trust
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What is a trading trust?
• The assets are legally owned by the trustee company but beneficially owned by the
beneficiaries
• Trust is not separate legal personality so creditors contract with trustee company
• The trustee company trades and incurs debts
• The trustee has a right to indemnity out of the assets of the trust in respect of debts it
properly incurs
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Protect assets from creditors
• To protect assets from creditors
• The assets of a trust are separate from your own assets so should not be available to meet
your personal debts and of course particularly in an insolvency.
• You can therefore gift assets (including money) to the trust and the trust may increase its
value by increases in the assets it owns or trading profitably
• Until 1 October 2011, could only gift up to $27,000 a year without incurring gift duty (ie, tax)
but from 1 October 2011 gift duty has been abolished.
• Depending on the circumstances, using for this purpose may or may not be ethical and may
be challenged by creditors under various laws:
o your business is failing so you transfer all your assets to a trust so your creditors do not
get paid; or
o before you start a business with a high risk of personal liability for negligence, you
transfer your assets to a trust.
• NB: Abuse of trusts is controlled by legislation
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Income Tax Planning
It is possible for taxpayers to organise their affairs in a way that will legitimately minimise the
tax they are obliged to pay.
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Maori Business Structures – useful resources
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Maori economy - snapshot
• Over 20+ years Maori authorities and enterprises have negotiated almost $2b in assets and
financial redress via Treat settlements. These assets have grown approximately 10-15% every
year.
• 1.4m ha of land in NZ is Maori registered land, owned by Maori authorities, enterprises and
individuals
24
Māori Land
• The Te Ture Whenua Māori Act 1993 (TTWMA)
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Māori Trusts
TTWMA Part 12
• Land-based trusts
o Ahu whenua trust (most common, often used for commercial purposes)
o Whenua Topu trust (iwi or hapu based)
o Maori reservations
Ahu whenua and whenua topu trusts are for the promotion and use of the land for the
benefit of the owners / iwi or hapu.
26
Māori Incorporations
TTWMA Part 13
• Similar to a company
• Can be established over any Maori land
• Owners have the ability to apply to the Māori Land Court to incorporate.
• The legal estate in fee simple (freehold) is vested in the incorporation (a body corporate).
The incorporation is governed by a Committee of Management elected by the shareholders.
• TTWMA provides that the incorporation shall hold the land and other assets vested in it on
trust for the owners.
• Some of the largest Māori land entities by land size and asset base are Māori incorporations –
160 in total.
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Significant iwi-based businesses
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