Question

Mary, Elizabeth and Bill run a business which sells imported European groceries online
and at its bricks and mortar store in Melbourne. The business has an annual turnover of
$6,000,000 and 30 employees, and profits of the business are shared between Mary,
Elizabeth and Bill. Mary, Elizabeth and Bill would like to expand their business by
importing new groceries from Asia and buying another store in the Docklands which they
hear is running at a loss. They do not want to take out a loan from a bank or bring in any
new people into the business.

Question 1(b) [5 marks]
Mary, Elizabeth and Bill have heard about trusts and they want you to explain a trust, how
trusts are created, and whether participants in a trust are exposed to any liabilities.

Question 1(c) [5 Marks]
Mary, Elizabeth and Bill also want advice as to whether they should incorporate a
company. They want to know:
• What type of company you would recommend for their business and why would
you recommend this type of company?

Answer 1

As given in the question, Trust is explained to Mary, Elizabeth and Bil, how they created, and whether participants in a trust are exposed to any liabilities.

Trust is a legal agreement between three parties including grantor or settler ( asset owner), trustee (person who is charged with the duties to hold asset abd administer the trust deed) and the  beneficiaries ( beneficiaries for whom the trust is created). There can be one or more benficiaries. This arrangement is mostly suitable for financial and estate plannings.

How Trust is Created

First , we must know the requiremments for creating a trust:

• Trust Deed
• The settlor should have the ability to execute a trust.
• There should be a clear intention of settlor to execute a trsut.
• Beneficiary should be clearly specified (for example, a person or class of persons like charitable purposes etc)
• Duties of trustee should be specifically mentioned.
• Trustee and beneficiary shouldbe different persons.

A trsut is created by a settlor, who holds and manages the property for the benefit of beneficiaries. Trust can be created as a written instrument or oral promise.

To create a valid trust, there are three certainities:

1. Certainity of words/intention
2. Certainity of subject matter
3. Certainity of idea/object

Liability of Trustees:

It i9s the responsibility of trustee to completly acquaint himself with the liabilities and powers imposed on him. He should take legal advice wherever required to discharge his responsibilities.

Liabilities of trustee to third party

If trustee enters into any contract with third party, third party can claim the trustee under this contract.

What type of company you would recommend for their business and why would
you recommend this type of company?

A way to limit the liability, Limited Liability Company can be incorporated. Limited Liability Company has hybrid features of partnership and company.There are several benefits associated for incorporating a LLC:

• Limited Liability
• Control with owners
• Perpetual Existence
• Raising Capital is easier
• Enhanced Credibility