Family Business: Is your structure helping, or hurting your future? 

Is your structure helping, or hurting your future?

When you’re running a family business, choosing the right structure is about more than tax. It’s about protection, control, legacy, and relationships. Whether you operate through a company, a family trust, or both, the structure you choose needs to support the way your family makes decisions, and grows together. 

Why partnerships are rarely the right fit for family businesses 

Simply put, a partnership is a type of business structure where two or more people carry on a business together with a view to profit.  Partnerships can be appealing when a family business starts out; simple setup, shared responsibility, and less red tape. While partnerships are less common these days, many families that operate a family farming business will be familiar with the partnership structure.

However, unlike a company, a partnership is not a separate legal entity, this means the business and the individuals behind it are legally the same.  This has some significant downsides: 

  • Unlimited personal liability – Each partner is personally responsible for business debts, even those caused by other partners 
  • No true continuity – The partnership dissolves if one partner leaves, making it difficult to plan for generational change. 
  • Difficult ownership separation – No shares or units make it hard to divide or transfer ownership among family members. 
  • Risk of disputes – Without formal governance, disagreements can turn personal and disrupt the business. 

Verdict: Partnerships often lack the structure needed for multi-generational growth, succession planning, and formal governance. 

If you currently operate your business in a partnership and wish to move into a more appropriate business structure call us on 1300 654 590 or email us for advice and assistance.

Why family businesses use company and trust structures 

1. Operating as a Company

A company is a separate legal entity that exists separately from its owners (known as shareholders) and managers (directors).  It is formed by registering with ASIC (the Australian Securities and Investments Commission) and operates under the Corporations Act 2001 (Cth).  A company is its own legal person, therefore, it can own property, enter contracts, and sue and be sued. 

Shareholders own the company, but directors control day-to-day operations, making it easier to separate ownership from management, especially useful in a family business with multiple generations or passive family members. 

It offers: 

  • Limited liability protection – Shareholders are not personally liable for company debts – their responsibility is limited to their investment – protecting personal assets. 
  • Formal governance – Directors are appointed, and decision-making follows structured rules set out in the Constitution and/or Shareholders’ Agreement. 
  • Easier share transfers – Ownership can be passed to the next generation or sold via share transfers, with clarity around value and control. 
  • A company can retain earnings and pay tax at a flat corporate rate, often lower than personal tax rates. 
  • Professional image – A company structure supports credibility when dealing with banks, investors, and suppliers and when capital raising. 

Verdict: A company structure is ideal for growth-oriented family businesses looking for legal protection, governance clarity, and smooth ownership transitions.  It is especially effective once multiple family members are involved, or external capital is considered. 

If you would like to more about how a company structure can help your business grow call us on 1300 654 590 or email us for advice and assistance.

2. Operating through a family trust

A family trust also known as a discretionary trust—is a legal arrangement where a trustee holds and manages assets on behalf of a group of beneficiaries, typically members of a single family.  It is governed by a trust deed and managed by a trustee, who decides how to distribute the income and assets. 

The trustee has discretion over how profits are distributed each year, meaning they can allocate income to beneficiaries in a way that’s most tax-effective for the family. 

A trust is treated as a separate taxpayer for many legal and tax purposes.  It allows: 

  • Flexible income distribution – Income can be allocated among family members each year in a way that minimises overall tax. 
  • Asset Protection – Assets are generally protected from individual family members’ creditors or relationship breakdowns. 
  • Capital gains tax (CGT) discount – The trust can access the 50% CGT discount if assets are held for over 12 months. 
  • Privacy and control – Trust deeds are private documents, and the appointor and trustee can retain strong control over the trust’s direction. 

Verdict: A family trust offers maximum privacy, tax flexibility and asset protection—especially valuable in the early to mid-stages of the business.  However, it may lack the governance structure needed for complex or multi-generational operations unless paired with a company. 

If you wish to know more about discretionary trusts and whether they are an appropriate business structure for your business call us on 1300 654 590 or email us for advice and assistance.

Evolving with the Family 

As your business matures and more family members become involved, decision-making becomes trickier.  Who gets a say? What happens if siblings disagree? Can some family members receive dividends while others work in the business? This is where managing decision-making through structured governance becomes important. 

At this point, you may also  be considering whether a family office is an option for you.  If you are ready to take your family’s succession planning and wealth management to the next level by establishing a family office, contact us on 1300 654 590 or send us an email. We would be honoured to assist you with getting set up or having an ongoing role as your family’s trusted legal counsel.

Managing decision-making: company constitutions & shareholders’ agreements 

A company constitution is a public legal document that outlines the internal rules governing the management and operation of a company. It functions like a rulebook for how the company makes decisions and conducts its affairs.  It is a contract between the company, its directors, and its shareholders (members).  It governs: 

For family-owned businesses, particularly those with intergenerational ownership, a custom constitution is usually preferred because it allows the company to build in specific rules to suit the family’s structure, values, and long-term planning. 

We have expertise in preparing custom constitutions.  From ADLV Law, you will receive advice and quality documentation that is not available online. Call us on 1300 654 590 or email us for a strategy and assistance in putting in place a structure that will help your family business thrive.

A shareholders’ agreement is a private contract between some or all of a company’s shareholders (and often the company itself).  It sets out how shareholders will behave towards one another, manage their rights and obligations, and deal with specific events such as death, retirement, or family breakdown.  Typically, it governs: 

  • The entry and exit of shareholders 
  • Share valuation and buy-sell mechanisms (e.g., on death, incapacity, or dispute) 
  • Restrictions on share transfers (pre-emptive rights, tag/drag along) 
  • How and when dividends are paid, through a dividend policy 
  • Funding obligations (especially important for capital-heavy businesses like farms) 
  • Roles and expectations of family members in management 
  • Dispute resolution processes 
  • Succession planning terms 
  • Confidentiality and non-compete clauses 

Shareholders agreements are bespoke and practical documents.  They need to reflect your business needs and your family situation. Call us on 1300 654 590 or email us for advice and assistance in putting in place shareholder’s agreements that will govern your family business for generations to come.

Using both a constitution and a shareholders’ agreement together allows you to separate governance from relationship management becuase: 

  • The constitution sets out the formal legal governance of the company (it’s what ASIC and the public sees). 
  • The shareholders’ agreement deals with practical, commercial, and often sensitive family matters that are not appropriate to place in a public document. For example, a family may wish to include: 
  • A rule that only bloodline descendants can hold shares; 
  • Special exit clauses triggered by divorce or bankruptcy; and/or 
  • A policy around how shares are valued for a buyout (especially important for succession planning and equalising entitlements among siblings).  

We urge you not to skimp on the preparation and review of these documents, they will ultimately dictate the success or failures of a multi-generational business succession strategy. 

Call us on 1300 654 590 or email us for advice and assistance in putting in place customer constitutions and shareholder’s agreements that suit a multi-generational business.

A hybrid structure: the best of both worlds 

A powerful and flexible model for many families is a Family Trust owning shares in a Company that runs the business.

Appropriate advice should be obtained before implementing this structure, with consideration given to the features of the existing family business and future plans.

Verdict: Combining a family trust with a company gives you the best of both worlds: flexible income distribution, strong legal protections, and a robust platform for succession and decision-making.  This approach is highly recommended for mature family businesses planning for the future. 

We can help you establish a hybrid structure for your family business. Call us on 1300 654 590 or email us to get started.

Let’s get you set up for the next generation 

The right structure should reflect your family’s values, plans for growth, and decision-making style.  If you need advice about a suitable business structure, are considering a restructure, or building your next-gen leadership team, we can help.  At ADLV Law, we work with families like yours to build strong, flexible, and future-proof structures.

Call us on 1300 654 590 or email us for advice around structuring and assistance in drafting the most appropriate documents for you. 

 

The information contained in this post is current at the date of editing – 24 April 2025. 

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