25/08/2009

  

A recent client query as to whether their business was within the definition of the term “a firm” revealed a whole set of other problems.

 

Although he was essentially a sole trader, the client needed to appear rather more substantial in the market place than a sole trader might otherwise appear to be, so he adopted a business name.

 

Then he had been told that a trust was the most appropriate method of owning his business so he set up a trust. 

 

His professional body had a rule limiting members of a trust operating in the industry to simply those persons who had the necessary qualifications.  As he was the only person with those qualifications in his business he was the only beneficiary of the trust.  But then he was also the trustee of the trust.

 

So his structure was a business name owned by him as trustee for himself.

 

He sought our advice as to whether this structure constituted “a firm” for certain statutory requirements.

 

Frankly, although the answer to the question is not clear, it is really an irrelevant question because the structure has a number of more fundamental problems.

 

For a trust to exist there must be a separation of the identity of the trustee and the beneficiary.  You can’t hold property on trust for yourself.  You can hold it on trust for yourself and another person, such as a spouse for example.  In that case there is the necessary separation of identity. 

 

That is one of the reasons why lawyers and accountants recommend that a separate company be established to hold trust assets and act as trustee.

 

So really he was a sole trader using a business name.  Remember that a business name does not create a separate legal entity.  It is simply the name its owner uses to identify the business.

 

The definition of the term ‘firm’ is somewhat grey and whether a business operated by a sole trader can be a firm depends on whether there is specific relevant legislative definition of the term (which requires the existence of a partnership) or whether we have to rely on a common parlance definition of the term which might be simply ‘a business’.

 

If you have any questions in regard to Firms, Trusts and Business Names, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.