SMSFs with a corporate trustee must ensure the fund has a company constitution that will allow the most current strategies to be implemented.
The founder of a Perth-based chartered accounting firm has advised practitioners to review the controlling documents of SMSFs with a corporate trustee structure to ensure certain succession actions are legally permissible.
Arithmos founder Loreena Gillon warned SMSFs that were established many years ago with a corporate trustee structure may still be operating under memorandum and articles of association that may not allow strategies considered conventional today, particularly those upon the death of a member.
“What’s the big deal about that? [Under] memorandum and articles of association you had to have a minimum of two directors,” Dillon told delegates at The Tax Summit held by The Tax Institute in Sydney recently.
She explained this stipulation could prevent a situation where, upon the death of a member of a two-member fund, the surviving member continues to run the SMSF as a sole director of the corporate trustee and the fund continues to operate as a single-member retirement savings vehicle.
“[In this situation the individual could] blindly go along [thinking it’s legal, forgetting] they’ve actually not converted their memorandum and articles of association across to a [company] constitution,” she said.
Gillon acknowledged individuals can access online documents that convert memorandum and articles of association to a company constitution, but recommended receiving professional assistance to facilitate the transition is a more prudent avenue to pursue.
She used her own experience to illustrate why this is a better course of action.
“I deal with a lot of medical specialists and in the old days, with these memorandum and articles of association, they were specifically worded because the AMA (Australian Medical Association) had specific requirements to allow doctors to be incorporated. So their memorandum and articles of association isn’t an off-the-shelf [document], it’s actually designed specifically [for their set of circumstances],” she noted.
“So I wouldn’t blindly assume that you can just hop online and convert from a memorandum and articles of association to a constitution. I would definitely consult with a lawyer.”
Written by Darin Tyson-Chan for https://smsmagazine.com.au/