Trust vs Company: Which Structure Is Right for Your Business?

One of the most common questions business owners ask is whether they should operate through a trust or a company. There is no one-size-fits-all answer. The right structure depends on how you earn income, who is involved, how profits are used, and what you are trying to achieve long-term.

Understanding the differences early can save significant tax, compliance issues, and restructuring costs later.

What Is a Company?

A company is a separate legal entity. It earns income in its own right, pays tax at the corporate tax rate, and can retain profits for future use.

Key characteristics of a company:

• Profits are taxed at the company tax rate (generally 25% for base rate entities)

• Directors control the business

• Profits can be retained rather than distributed

• Shareholders are taxed when profits are paid out as dividends

• Strong legal separation between the business and individuals

Companies are often suitable for businesses planning to reinvest profits, grow, or bring in external investors.

What Is a Trust?

A trust does not pay tax itself in most cases. Instead, income is distributed to beneficiaries, who then pay tax at their own marginal rates.

Key characteristics of a trust:

• Income can be distributed flexibly each year

• Useful for income splitting within a family group

• Often paired with a corporate trustee

• Less suitable for retaining profits long-term

• More complexity around compliance and record-keeping

Trusts are commonly used where asset protection and tax flexibility are priorities, particularly for family-owned businesses and investment activities.

Key Differences That Matter in Practice

Tax flexibility
Trusts allow income to be distributed to different beneficiaries each year, which can reduce overall tax. Companies have a flat tax rate but less flexibility in who ultimately pays the tax.

Cash flow and reinvestment
Companies are generally better if profits need to stay in the business. Trusts typically require income to be distributed, which can create personal tax liabilities even if cash is not withdrawn.

Asset protection
Both structures can provide protection when set up correctly, but trusts are often preferred where assets need to be separated from trading risk.

Complexity and compliance
Trusts require annual distribution resolutions and careful documentation. Companies are simpler in this respect but bring their own obligations around dividends and director responsibilities.

Which Structure Is “Better”?

Neither structure is inherently better. The correct choice depends on:

• Whether profits are needed personally or reinvested

• Who should ultimately receive income

• Whether asset protection is a priority

• Long-term plans such as selling the business or adding partners

• The risk profile of the activity

In many cases, businesses use both structures together, for example a trust owning shares in a company, or a trust operating the business with a corporate trustee.

The Cost of Getting It Wrong

Choosing the wrong structure can lead to:

• Higher tax than necessary

• Cash flow issues from unexpected tax bills

• Difficulty bringing in partners or investors

• Expensive restructures down the track

This decision is best made before income starts flowing, not after problems appear.

If you are considering starting a business, changing structures, or simply want to understand whether your current setup is still appropriate, contact us to discuss.