Areas of Law • Rural and

Agribusiness• Litigation and Court

Disputes• Building and

Construction

• Commercial and Business

• Mediation • Employment

• Family Law • Wills and Powers of Attorney

• Mining and Resumption

• Property • Estates • Banking and Finance

GETTING INVESTMENT READY

A LEGAL FRAMEWORK

TYPES OF STRUCTURES USED

BRAD BEASLEYPRINCIPAL

SOUTH GELDARD LAWYERS

What type of investment structure do you need

Answer will depend on -

What strategy have you got or are going to put in place

What sort of investment do you want to attract

The size of your agricultural operation

What are the operational objectives and requirements for your agribusiness

Other considerationsWhat – Are you seeking to grow

• PRODUCTIVITY• EARNINGS• ASSET BASE

Asset Protection Improvement in succession planning Proprietor -v- Employee Ability to attract finance Compliance costs and disclosure of results Achieving tax effective change

• Capital Gains Tax• Rollover Relief • Commercial Reasons for Change• Anti-Avoidance Provisions• Stamp Duty – are concessions available

What legal structures are available?

1. Sole Trader

2. Partnership• Mum and Dad Partnership• Family Partnership• Agribusiness Partnership

3. Trust• Family Discretionary Trust• Unit Trust • Hybrid Trust

4. Company• Trading Company• Proprietary Limited Company• Unlisted Public Company• Listed Public Company

5. Some Other Alternatives• Trading Co-operative• Managed Investment Scheme• Joint Venture

Sole Trader What is it – An individual trading in their own right

Advantages• Least expensive/minimal compliance costs• Full control• CGT concessions (50%)• All profits to single owner

Disadvantages• Unlimited liability• Lack of asset protection• Profits subject to individual’s marginal tax rate• No potential to split income

Partnership What is it – Two or more parties conducting a business with a view to profit Advantages

• Not expensive to set up• Partners – additional source of funding• Additional skills brought to the business• Flexibility to split income• Partners can dispose of their % interest

Disadvantages• Unlimited liability• No flexibility for retention of profits• Disagreements between partners• Partnership may cease on death• Generally limited to maximum of 20 partners

Trust What is it – Property or Business is held by a Trustee for the benefit of others

Advantages• Splitting and streaming of income• 50% CGT discount generally available• Some asset protection provided• Beneficiaries safeguarded from creditors• Continuity of business if a beneficiary dies

Disadvantages• Expensive to set up and maintain• Legal ownership with Trustee (not beneficiaries)• Limits on powers in Trust Deed• Political uncertainty surrounding tax treatment• Complicated rules for carry forward losses• 80 year life generally

Company What is it – A group of people who own shares in an entity controlled by themselves or

others

Advantages• Limited liability if no personal guarantees• Ability to retain profits• Flat rate of tax• Potential for income splitting• Ability to access capital• Governance through a Board of Directors • Perpetual existence

Disadvantages• Expensive to set up and maintain • Subject to greater government regulation• Control of the business with directors – not owners• Employee on costs• Director risks if insolvent trading• 50% CGT discount not available• Different rules for different company types

Trading Co-operative What is it – A mutual business owned by customers and/or employees

Advantages• Share capital and allows for distributions• No limit on number of members• Democratic control – one member – one vote• Governed by agreed set of rules• Perpetual existence

Disadvantages• Expensive to set up and maintain• Longer time needed for registration• Initial disclosure required of personal financial involvement• Budget to be lodged with Office of Fair Trading• Disclosure of contract information• Usual Director’s duties

Managed Investment Scheme What is it – Investments by a responsible entity of funds raised

Advantages• Pooled contributions to invest for profits• Allows for more than 20 members• Ability to raise significant capital• Able to avoid public disclosure of profits (unlisted)

Disadvantages• Members do not have day to day control• Expensive to set up and register• Heavily regulated• May need a Financial Services Licence• Promotion may need a Product Disclosure Statement (or Information Memorandum)• Significant reporting and ongoing costs• Withdrawals may be frozen

Joint Venture What is it – A strategic alliance of 2 or more parties to engage in a specific project

or undertaking

Advantages• Opportunity to grow quickly • Access to additional resources and markets• Risk sharing between JV parties• Specific to a particular project or opportunity• Limited governance required• Generally no registration or statutory obligations

Disadvantages• Time needed to find and trust JV partner• Detailed JV Agreement to set rules and objectives• Imbalance or difference in objectives or cultures• Difficulty to capitalise or debt fund

Over complicating it

Mrs B Smith Sole Director/Secretary100 A Class1 Ord

Ms C Smith 100 G Class

Members and Officers – Group 2

Mr A Smith Sole Director/Secretary100 A Class1 Ord

Mrs B Smith 100 B Class1 Ord

Members and Officers – Group 3

Mr A Smith 100 A Class1 Ord

Mrs B Smith Sole Director100 B Class/1 Ord

Ms C Smith 100 G ClassMr D Smith 100 C Class

Smith Equipment Pty LtdNew trustee company

Smith Operations Pty LtdNew trustee company

Smith Agribusiness Pty LtdNew trustee company

Smith Equipment Trust (SET)Wet hires equipment to Smith Pty LtdPays dry hire charge to SFT

Smith No 2 Pty Ltd (Smith 2)Holds business name, licences, leaseConducts agri businessPays staff hire charge

NewcoCorporate beneficiary Bucket Company

Family membersOther trusts

Smith Staff Hire Pty LtdEmploys all staffProvides training

Smith Family Trust (SFT)Equipment assetsFinance liabilitiesHires equipment to SET

Smith Rural Hire Pty Ltd Hires external contractorsPotential corporate beneficiary

Contractor Sub-Hire

Equipment Dry Hire

Wet Hire

LivestockFreight

Dry Hire

SMALL AGRIBUSINESS OPERATION

Members and Officers – Group 1

What investors wantBUSINESS Financial Performance – Strong Returns Industry Experience Strong Management/Governance Effective Business Model/Strategy Significant Growth/Target Markets

LEGAL Full Disclosure Effective Documentation Intellectual Property Protection Exclusive Licences Confidentiality Agreements