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Trading as a company in Australia

  • #21
  • Jan 29, 2015 12:55am Jan 29, 2015 12:55am
I trade with in New Zealand under a LLC but did complete a personal guarantee with the broker (this was probably negotiable but I wasn't concerned at the time). Company is owned by a trading trust with a corporate trustee. House and other assets in a separate family trust - so pretty well ring-fenced and therefore the personal guarantee is not worth a lot.
  • #22
  • Jan 29, 2015 12:59am Jan 29, 2015 12:59am
Quoting Copernicus
You are most welcome CC. Nice avatar by the way.....*sings*...Once I smoked a Danneman cigar....... :-)
"And drove a foreign car, baby that was years ago, left it all behind". Cold Chisel, the band of my youth.

Support all the information provided by Copernicus. I use a company structure to trade. You will find that with any entity you use, invariably you will need to provide, along with the other Directors, personal guarantees. Also, be careful about costly trust structures, accountants love them as they generate plenty of fee income.
Audentes Fortuna Juvat
  • #23
  • Jan 29, 2015 1:05am Jan 29, 2015 1:05am
Quoting Nijee
{quote} "And drove a foreign car, baby that was years ago, left it all behind". Cold Chisel, the band of my youth.
They sound great particularly with 10 Bundy rum and cokes lined up in a row and get even better with each glass. :-)
  • #24
  • Jan 29, 2015 2:34am Jan 29, 2015 2:34am
Quoting studio1
I trade with in New Zealand under a LLC but did complete a personal guarantee with the broker (this was probably negotiable but I wasn't concerned at the time). Company is owned by a trading trust with a corporate trustee. House and other assets in a separate family trust - so pretty well ring-fenced and therefore the personal guarantee is not worth a lot.
So it means that if you get a negative account for several hundred thousand trading as a company you will still keep your house because it is in a separate family trust. If that is the case then this structure can protect your other assets. But when you were completing this personal guarantee did your broker ask you questions about your assets and what answers did you give them.
In my opinion they should have been concerned that in case of your default they will not be able to take your assets, or I don't understand something here? And is this possible to do in Australia, to have several trusts and companies?
  • #25
  • Jan 29, 2015 3:01am Jan 29, 2015 3:01am
Quoting cold chisel
{quote} So it means that if you get a negative account for several hundred thousand trading as a company you will still keep your house because it is in a separate family trust.
Yes - same if any of my other businesses failed for some reason owing creditors (not that I really have any). No the broker did not ask questions - did your current broker ask for a personal statement of position?

The black swan CHF even seems fairly unprecedented - brokers typically rely on sufficient margin in your account to avoid negative equity, so not sure how they will change their requirements going forward except reducing leverage substantially. You can minimise risks yourself of course by taking a max leverage on your account of 50:1 and using real leverage at far less.

I would be more concerned about the financial stability of my broker than perhaps their perception of me...
  • #26
  • Jan 29, 2015 3:19am Jan 29, 2015 3:19am
Quoting cold chisel
{quote} So it means that if you get a negative account for several hundred thousand trading as a company you will still keep your house because it is in a separate family trust. If that is the case then this structure can protect your other assets. But when you were completing this personal guarantee did your broker ask you questions about your assets and what answers did you give them. In my opinion they should have been concerned that in case of your default they will not be able to take your assets, or I don't understand something here? And is...
In Australia, seperate trusts and limited liability companies do offer a degree of asset protection provided that it can be demonstrated that asset protection measures have not been undertaken fraudulently. For example, for the Christopher Skase's and Alan Bond's of this world who set up a complex web of entities to offer asset protection whilst fraudulently entering into activities to transfer assets to avoid their corporate responsibilities came undone as the ATO and ASIC have powers in these instances to step up and beyond trust law and corporate law to recover these assets. The problem is the time it takes to recover assets from these webs and the associated legal costs etc.

If it can be demonstrated that ethical and legitimate transactions were undertaken between these entities without deliberately avoiding obligations, then such structures can afford some asset protection.

I haven't a clue about NZ as I am not over their legislation, but undoubtably they would probably be fairly simlar to AUS and studio1 obviously knows his stuff here.

As mentioned before, the tightening in the last few years of legislation in Australia particularly aimed at reducing the ability to transfer assets into protected havens has meant that a review of Trust Deeds is essential as the prior protection offerred is no longer guaranteed.

The really only untouchable structure we have here in Aus is the Superannuation Trust which also offers strong taxation benefits. A SMSF for example gives far better asset protection against damages claims but there are costs/ opportunity costs associated with transferring your assets into your super fund which effectively remain untouchable till you approach retirement.

It is prudent however to still engage trusts for asset protection, but their use these days is more aimed at stategies that allow for significant tax benefits associated with their utilisation.
  • #27
  • Jan 29, 2015 5:28am Jan 29, 2015 5:28am
I am trading with the Australian Broker INGOT Brokers (Australia) PTY LTD
They are a very good honest broker
  • #28
  • Jan 29, 2015 6:34am Jan 29, 2015 6:34am
Quoting studio1
{quote} Yes - same if any of my other businesses failed for some reason owing creditors (not that I really have any). No the broker did not ask questions - did your current broker ask for a personal statement of position? The black swan CHF even seems fairly unprecedented - brokers typically rely on sufficient margin in your account to avoid negative equity, so not sure how they will change their requirements going forward except reducing leverage substantially. You can minimise risks yourself of course by taking a max leverage on your account of...
Yes two of them asked me about my Australian assets, but that was 10 years ago, I don't change brokers often. To me such small leverage is not good, even though my accounts were more than 100k I still wouldn't like to have such exposure with my everyday trades.
  • #29
  • Jan 29, 2015 7:34am Jan 29, 2015 7:34am
I have been Standing on the outside, watching the other Circus Animals answer your questions. Copernicus has done a great job covering it. ASIC keeps a pretty good eye on things as far as the markets go, making sure your broker is the real deal is probably your biggest worry in that regard. I have been with the same brokers, using one mostly but others to hedge, for more than 15 years. Getting that right is key. The troubles caused by the chf trades have not even entered my mind as I think ASIC will probably deal with it, may take some time which is unfortunate for those involved, but will probably work out ok. Having a reputable , local broker is paramount. Don't fall for the "free steak knives " offers you see from overseas. When it hits the fan you want to be able to talk to someone, either broker or authority.

As far as your set up goes, there are many ways, but these days with Trust rules having changed and weakened considerably we have had to move with the times. Hybrid Trusts don't really do the job any more. If you are in a business with risk, like we are, it is worth putting your other assets into another Trust, probably discretionary, to protect them. Trading from a Trust doesn't really offer the same protection anymore. Most of us trade as Trustees of Trusts in the form of Proprietary Limited companies (Pty Ltd, no LLC in Oz). This puts an extra arm in the process which is never a bad thing, but as Copernicus said earlier, if you have set up obviously to avoid certain situations they soon unravel it.
When you open accounts with brokers as a corporate entity they will ask for Directors Guarantees anyway, which goes some way to covering the broker. That is why you want other assets in a separate entity (Trust) to protect from this. Be aware they can still easily claw your share of that Trust though.
Something else to be aware of, tax. If you are earning large income from trading the first few years the tax man loves you. It takes some time to be recognised as "Trader" by the ATO. You need to prove a few years accounts showing trading as your primary income, to get the full benefit. Until then they wound you. If you are trading Forex they generally throw the income on top of your other income and charge the full marginal rate,( if you trade equities , commodities etc they try to put some as capital gains so be careful there.) that is where being a company helps as the corporate tax rate is lower than personal rates. Once they rule that you are a trader you can then claim the costs for setting up and managing the affairs of the entity as a cost of doing business, as well as brokerage and the losses fall into there too. You need to be making a reasonable income though before this becomes viable.
Trading is an area they view very skeptically, and this will probably be worse for a bit now, so whichever way you choose to go, do it with your proper accountant, not some financial adviser.
  • #30
  • Jan 29, 2015 9:37am Jan 29, 2015 9:37am
Nice additions Greeny :-)
  • #31
  • Jan 29, 2015 5:05pm Jan 29, 2015 5:05pm
Thank you Greeny and Copernicus as always. Finding a good account seems vital. Can you share some tips on finding one who can help with the company structure, because as an individual trader with no other income I was happy to service myself without a problem.
  • #32
  • Jan 29, 2015 5:48pm Jan 29, 2015 5:48pm
  •  Analog
  • | Joined Nov 2010 | Status: Hold my beer and watch this... | 27 Posts
My situation for what it's worth @cold chisel....

My trading is conducted by a Proprietary Limited Company which acts as Trustee for our family Discretionary Trust. We are advised that this offers to us the most advantageous tax arrangement whilst providing maximum personal liability protection to my family. That said, everyone's position needs to be assessed independently by a suitably qualified accountant and lawyer - your situation may differ from mine.

We have trading accounts with a couple of Australian forex brokers (primary account with Pepperstone) and also have accounts with Interactive Brokers and with CBA and Macquarie Bank Securities Trading divisions.

For reasons that appear to have no particular rationale, some trading accounts have been established by the respective brokers in the name of the Trust and some have established the trading accounts in the name of the Pty Ltd company. All are associated with the same CBA bank account which is "xxxx Pty Ltd as Trustee for the yyyy Trust".

Each of the brokers sought Director's Guarantees prior to agreeing to open a trading account. If your company offered collateral in some other form, or was large enough and of the highest repute, the brokers may waive the requirement for Director's Guarantees. If, however, your company has a relatively modest capitalisation, then good luck having the brokers waive the Guarantees! I tried without success and don't personally know anyone who succeeded.

The insistence on Director's Guarantees negates most of the personal protections that operating as a Proprietary Limited Company or Discretionary Trust would otherwise confer - so unless you are a large public listed company you are unlikely to be able to be completely protected from any negative consequences which may befall your company.
  • #33
  • Jan 29, 2015 7:12pm Jan 29, 2015 7:12pm
Quoting Greeny
I have been Standing on the outside, watching the other Circus Animals answer your questions.
LOL. This one is for you Greeny!

Inserted Video
Audentes Fortuna Juvat
  • #34
  • Jan 29, 2015 7:27pm Jan 29, 2015 7:27pm
Quoting abusarta
I am trading with the Australian Broker INGOT Brokers (Australia) PTY LTD They are a very good honest broker
Swap free account = B Book .
  • #35
  • Jan 29, 2015 7:29pm Jan 29, 2015 7:29pm
Quoting abusarta
I am trading with the Australian Broker INGOT Brokers (Australia) PTY LTD They are a very good honest broker
No scalping ?
  • #36
  • Jan 29, 2015 7:37pm Jan 29, 2015 7:37pm
Quoting Nijee
{quote} LOL. This one is for you Greeny! https://www.youtube.com/watch?v=L_6NOIeziQQ
I hope that isn't a personal insult Nijee? But I enjoyed the musical interlude sitting here between Four Walls staring at these screens.
  • #37
  • Jan 29, 2015 7:50pm Jan 29, 2015 7:50pm
Quoting Analog
My situation for what it's worth @cold chisel.... My trading is conducted by a Proprietary Limited Company which acts as Trustee for our family Discretionary Trust. We are advised that this offers to us the most advantageous tax arrangement whilst providing maximum personal liability protection to my family. That said, everyone's position needs to be assessed independently by a suitably qualified accountant and lawyer - your situation may differ from mine. We have trading accounts with a couple of Australian forex brokers (primary account with Pepperstone)...
Absolutely spot on. In the end the Directors Guarantees pretty much override everything else you do to distance yourself, unless you have absolutely no interest in the entities holding the rest of your assets. I've done this on behalf of public companies and guarantees have still been required, so I doubt you'll get away without them these days.
Going back to your original concerns around brokers, in Australia ASIC keeps a tight line on brokers and usually stops things before they get out of hand , so wouldn't fret too much. Ananlog named a few, I have found Halifax to be excellent over the years too. Whoever it is, get one with a face and try to frm a personal relaionship with them.
Choose a broker wisely, head off to the accountant One Long Day , No Sense sitting Home and Broken Hearted because you have a set up that is No good For You. Sorry folks, it just happens.
One last thing, many accountants don't view trading as a legitimate thing, so if you have one of those , move along to a new one that will take your requirements seriously.
  • #38
  • Jan 29, 2015 9:10pm Jan 29, 2015 9:10pm
Quoting Greeny
{quote} Absolutely spot on. In the end the Directors Guarantees pretty much override everything else you do to distance yourself, unless you have absolutely no interest in the entities holding the rest of your assets. I've done this on behalf of public companies and guarantees have still been required, so I doubt you'll get away without them these days. Going back to your original concerns around brokers, in Australia ASIC keeps a tight line on brokers and usually stops things before they get out of hand , so wouldn't fret too much. Ananlog named...
So as I understand you correctly a broker will decline an application from your company unless the director of the company makes a written statement that his company is liable for a possible negative account balance and the Director is ready and willing to give up his personal assets to cover these costs?
I wonder why retail forex exsistsat all. I was trading for so long and basically never thought of a possibility of going broke because my broker says so. It is a one way street of some sort, isn't it?
The more you write about the subject the likely I won't be coming back to trading. It's easier making money elsewhere.
  • #39
  • Jan 29, 2015 9:14pm Jan 29, 2015 9:14pm
What about insurance? Can you insure the rare happening event of a negative balance somewhere? Trading as a company or as an individual trader?
  • #40
  • Jan 29, 2015 9:49pm Jan 29, 2015 9:49pm
Quoting cold chisel
What about insurance? Can you insure the rare happening event of a negative balance somewhere? Trading as a company or as an individual trader?
You can insure anything but the cost would make this not a viable option.
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