We have inherited the trading structures we currently use for our business; however, I often wonder if what we have is effective. Is there a more efficient structuring alternative our business can use to manage our affairs?
It is common to see family farming businesses with entities that have been inherited and continue operating through subsequent generations without any changes.
Understanding whether to keep entities
The reasons for maintaining entities through generations can vary from asset protection, tax management or specific family dynamics. However, many times, entities are kept simply due to not considering whether the entities still serve a commercial purpose as part of the family business operations.
If the entities in place for your family group are an effective structure and you understand why each entity exists, then you are ahead of many businesses. If there are any entities that don't serve a commercial purpose, then you may want to consider winding up those entities.
Winding up entities
Winding up an entity refers to closing the operations of a business, selling off assets, paying off creditors, and distributing any remaining assets. This should only be done with a clear understanding of the purpose in doing so and the costs associated, which will be influenced by the type of entity and the net assets that are owned by the entity.
Partnerships, Trusts and Companies are governed by various elements of legislation that need to be considered should you wish to wind these entities up. Dealing with the net assets, which is essentially the balance sheet of the entity, can be time consuming to ensure any underlying tax consequences upon moving assets or relinquishing any of the debt balances is carefully assessed.
A key consideration for all businesses is the treatment of family or inter-entity loan balances that have either built up over the years whilst managing them, or were taken on at the time the management of the entities was inherited.
Whilst every family operation has a different set of circumstances to consider, having a holistic view on why the entities exist can help make an informed decision. This can be accomplished by effective communication within families and with the advisers that support them.
There is no ideal time to review your structures.
The sooner you do it, the sooner you will have clarity on your options and if any changes are relevant or necessary.
I strongly suggest seeking advice before executing the wind up of an entity.
The cost of not doing this correctly can be far greater than the cost of the actual advice.
If you would like more information on this topic or have a question, please contact the Findex team at email@example.com
While all reasonable care is taken in the preparation of this article, to the extent allowed by legislation, Findex (Aust) Pty Ltd ABN 84 006 466 351 (Findex) accept no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Findex assumes no obligation to update this material after it has been issued.
The information contained is of a general nature only and does not take into account your specific financial situation. You should seek professional advice before acting on any material.
Cade Gow is an agribusiness specialist at Findex Albury
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