Corporate Fiduciary Structure

Developing and structuring a solid and flexible corporate fiduciary structure is one of the most important elements in developing a successful international expansion plan.  The folly of failing to invest in robust structuring may not reveal itself for many years and, by that time, it is usually a highly complex and expensive task to undo the difficulties in which many businesses find themselves.

Properly considered and developed, corporate fiduciary structuring has the ability to build in flexibility in profit repatriation, legitimate minimisation of taxation and the protection of intellectual property.  Improperly considered, the chosen structure has the potential to rob shareholders of significant operational and asset value.

The development of a robust corporate structure necessarily includes consideration of many operational and strategic factors such as

• What are the target markets and when it is envisioned these might be secured?
• What is the magnitude of cash movements through the business?
• Does the business wish to repatriate profits from its international operations?
• What intellectual property will be used in each of the target and other countries?
• Over what time frame will the business require a cash-retention strategy versus a dividend realisation strategy?

Consideration must be given to the development of off-shore entities and the countries in which those entities might be domiciled.  Many countries around the world offer substantially lower corporate taxation rates and it can be beneficial to domicile some corporate entities in such markets.  However, such advantages often don’t come without their risks - many countries required countries domiciled within their borders to have local directorships - a role accounting firms, lawyers and other business professionals often play.  The question must be asked: are the Australian directors comfortable with the notion that one of their entities is potentially left in the control of a director not intimately associated with the company?

The protection of intellectual property is a key consideration which, all too often is ineffectually considered.  It is not enough to consider the current range of intellectual property elements.  Consideration must also be given to the potential for new elements to be created in an international network.  Questions of rights of ownership will undoubtedly be covered in the relevant legal agreements, however, the taxation implications, cost base and other financial issues associated with the assignment of intellectual property assets must also be considered.

Many companies do adequately consider the operation of the business in the short and even the medium term.  However, many more fail to consider the implications of an exit strategy - when might shareholders wish to exist and realise the asset value they have created in their businesses.  Here, consideration must be given to asset value and how this might be extracted from a complex and internationally diverse corporate structure.  Amongst other things, the implications of double tax treaties between Australia and a range of other countries must be considered.  Withholding-tax and complex repatriation rules and regulations require specialist consideration.

Flexibility and efficacy are undoubtedly two of the key goals of any corporate structure.  In considering the international opportunities, companies embarking on expansion strategies would do well to consider whether their corporate structures will be “fine” or whether investing in structuring to support the growth initiatives is a worthwhile activity.

David Stafford

David Stafford is an Executive Consultant at DC Strategy.

DC Strategy is the region’s leading specialist consulting and legal firm. Our specialist teams in Strategy, Franchising, International and Legal have developed the networks and brands of many of the region’s most successful businesses. Contact David Stafford at david.stafford@dcstrategy.com