3 questions asked when setting up an SMSF corporate trustee
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We are regularly asked these three questions by clients either setting up a new fund with a new corporate trustee or wanting to change their trustees from individuals to a company.
Do I need a company secretary for my proprietary company?
There is no obligation on a company to appoint a company secretary. However, if it does, at least one of the secretaries must ordinarily reside in Australia.
It is important that the company secretary consents in writing to the appointment by the director(s) and that they are not a disqualified person.
While you do not have to appoint a company secretary, it is something you may want to consider doing now, particularly for the purposes of signing under s127 of the Corporations Act.
Some third parties, such as banks or land titles offices in various states, require companies to execute documents under this section so they are able to rely on the assumptions set out in s129 (that is, that the document was validly executed and binding on the company).
In the case of a sole director company, also appointing them as the company secretary allows the director to sign documents by themselves, without the need to share control of the company and the SMSF with a second person.
This is particularly appealing when the sole member does not want the rest of their family to know details of the affairs of the SMSF.
In the case of a two-director company, having the directors also act as company secretaries means that in the event of death or loss of capacity of one of them, the remaining director is already empowered to execute documents by themselves.
There are several methods available to a company to execute documents (for example, under the terms of its constitution).
However, where there is no company secretary, we have seen instances where banks have requested that further documentation be prepared to confirm the valid execution of the documents.
Does the corporate trustee have to be a "special purpose" company?
A special purpose company is a company which is established for a specific purpose and includes a company that will only act as the trustee of a regulated superannuation fund.
A corporate SMSF trustee is not required to opt for the special purpose status. However, the recommended practice is to do so.
One of the reasons is that the constitution is generally more appropriate to the management of an SMSF in terms of voting rights and automatic appointment of a legal personal representative in the event of death/incapacity.
It also offers a greater level of asset protection since SMSF assets are kept separate from business or other trust's assets that the company may hold.
As a further incentive, the status entitles the company to a heavily discounted ASIC annual review fee of $47, compared to $249 for a standard company.
It is important to select the type of company at the outset because the constitution will be slightly different depending on its status.
In the case of a special purpose company, there must be a clause prohibiting the distribution by the company of income or property to its members.
Do not despair if that is not how you established your corporate trustee: it is possible to change the status of a company from standard to special purpose (and vice versa) by changing its constitution. However, this will generally incur costs.
A company which will act as trustee of a holding (bare) trust for the purposes of a limited recourse borrowing arrangement is not entitled to the special purpose status.
How many shares should be issued to the members of the SMSF?
The class and number of shares to be attributed to each member will generally depend more their estate planning needs and strategies rather than on the administration of the SMSF.
For the latter purpose the shareholding is effectively irrelevant.
However, the company constitution, Will and enduring power of attorney documentation of the deceased/incapacitated director will need to be carefully drafted to ensure their voice continues to be heard and their wishes carried out.
The documents need to work together to achieve the required aims.
Ensuring all the documentation works together is even more relevant where the director only has one share but has nominated several attorneys/executors.
Indeed, some constitutions give the voting right attached to that share solely to its first registered co-owner, giving only this person the right to vote.
Also, if the attorneys were appointed to act jointly, they would need to find a consensus when exercising their single vote.
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Peter Townsend is the managing director of SUPERCentral, an online SMSF services provider. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind.
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