Corporate trustee shares can’t be ignored

shareholding corporate SMSF

The shareholding of the company acting as the corporate trustee for an SMSF is a crucial component in running a fund, but is often ignored.

The shareholding of an SMSF corporate trustee is a critical component that can definitively help avoid or resolve conflict among the directors of a fund with four or more members in it, a technical expert has said.

“One thing that is often missed when appointing a corporate trustee is consideration of who owns the shares in that company acting as the trustee of the fund because ultimately it’s the shareholders who will have control of that company,” Accurium head of education Mark Ellem told selfmanagedsuper.

“So you might have all the members being appointed as the directors of the corporate trustee, but you might only have certain individuals among that group owning all the shares in the corporate trustee.

“It can act as an insurance policy with regard to running the fund that if things go awry, then those shareholders can effectively remove that company as trustee.”

Ellem pointed out this course of action will require some planning from the time of fund establishment or when the decision is made to include additional members in an existing SMSF.

According to Ellem, the trust deed is an additional element that can help resolve or manage member conflicts.

“You can also look at mechanisms within the trust deed itself that determine voting powers – how do trustees vote? For a corporate trustee scenario that detail will be contained in the constitution of the company acting as the trustee of the SMSF,” he said.

When looking to take advantage of the new ability to include up to six members in an SMSF, often this means parents will add their children to the fund and this will often create issues with minors, he noted.

“Under the SMSF rules, minors can’t be trustees or directors of the corporate trustee. Instead their legal representative will be the trustee or director and that can be one of their parents,” he said.

“When children come of age, turn 18, one of the options might be they appoint a parent as an attorney under a power of attorney for them to be the director in their place.”

Ellem will be discussing this topic in greater detail at the selfmanagedsuper SMSF Professionals Day 2022.

Please click here to register.

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