Top 5 Benefits Of A DST
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Submitted by Christene Barbe
Delaware Statutory Trusts are commonly known as DST’s. They have been used in Delaware for decades, created to simplify the complexities of business law. Corporations were initially formed in this state because it was the only place that offered a long list of advantages.
This type of entity most often formed is referred to as an LLC or Limited Liability Company. While marriages are difficult at best, forming an LLC with your spouse is easy and inexpensive, thus making them popular for married couples who live in countries that recognize common law marriage. This piece has been written to highlight the top five benefits of a DST.
Provides Limited Liability
A Delaware Statutory Trust is a separate legal entity with its identifying number and can open its bank account. The company owners are only liable for their investment in the company up to their initial contribution, not any further contributions.
It’s important to note, though, that there is a chance the members of a DST will be liable for any debts or liabilities accrued by the company if they sign documents containing personal guarantees.
DST’s have no “double taxation.” This means that all profits and losses are recorded in the DST’s books and taxed only once, at the DST level. The profits can be distributed to shareholders in different ways, including cash or property distributions.
One of the most important benefits of a DST is that it offers an option to transfer interests without triggering immediate tax events. This feature allows limited liability protection even if you decide to change management or sell your interest in the business. The remaining members’ interests will remain undisturbed by this event.
If you don’t want someone else buying into your LLC, then use a buy-sell agreement, which we’ll cover more later in this article. The buy-sell agreement dictates how a member can be bought, sold, or removed from the LLC.
To transfer your interest in the company, you must get written approval from all other members to do so. One of the most significant benefits a DST has is that one or multiple owners can own a part of a business without triggering double taxation.
Offers Tax Treatment Advantage
The DST has another advantage when it comes to taxes. Since you are taxed as an individual, not a business, your earnings are considered passive income.
This is much better for tax purposes compared to other entities such as S Corporation or C Corporation because all their income is taxed twice, once at the corporate level and again when distributed to shareholders in the form of dividends.
When you use a DST, you receive the income in your return and not on a separate tax return filed by the company.
No State-Level Income Taxes
As mentioned earlier, Delaware did not have state-level taxes until 2015, and it did not start collecting corporate taxes until 2017, which means lower annual fees than some of the other states.
If you are planning on being in Delaware long-term, then consider opening your DST in this state. For you, this means you will save on annual fees and can focus on running your business.
The ease with which a DST is formed makes it one of the most popular entities for new businesses. The formation process is simple and inexpensive compared to other types of entities such as corporations.
If privacy is an important factor for your business, a DST will protect that privacy since it has no public filings. You could also form an LLC if you want to have general privacy in your business transactions but need some of the benefits of incorporation, such as increased credibility when making large purchases or securitizations.
Both types can be formed online and do not require any personal information upon formation, therefore protecting members’ identities until they reveal their status by filing articles of organization with the state government.
Additionally, there are no annual reports required under Delaware law. This means if you move to another state and convert your DST into a corporation, then there is no public record that the business was originally an LLC. You can also form a Delaware LLC in less than 24 hours.
In conclusion, since limited liability companies were initially formed to provide limited liability protection for owners, why not take full advantage of this legal structure by forming a DST.
*This article is based on personal suggestions and/or experiences and is for informational purposes only. This should not be used as professional advice. Please consult a professional where applicable.