Don't panic - this isn't an article for milliners. It's about the different "hats" we wear in business. While not in the usual "how to grow your business" theme, it is very important to have the correct relationships with your business. Even if it's just a sole trader, you need to view your business separately from yourself. Obviously, a business and its owner should share the same positive values, you and your business are different.

This helps in many areas. They have previously tidied up the Companies Act, and a new Trust Act is about to replace the old. Although the legal position of both directors and trustees hasn't changed too much, it's now spelt out more clearly, and there is more action being taken to ensure they can no longer get away with failing to fulfil our duties and responsibilities.

While it's important that we take a holistic view of our lives, breaking them down into various roles allows us to focus on areas in more detail. In "The E-Myth Revisited" we see three skill sets needed in any business, and that is particularly challenging if you're the only one and two involve different personality types. Since you have to both run and manage the business, it's generally a struggle in one area or the other.

In this article, we look at how the business requires us to wear different hats. While this applies to some extent to sole traders and partnerships, the focus here is particularly on companies and trusts. While trusts are not usually a vehicle for business, they can be effective in removing business risk from family homes and other assets. They can also provide some flexibility in allocating taxable income, although IRD rules put limits on this.

The latest change to the Trust Act brings it more into line in some areas of the Companies Act but in theory, little should change. The article on trusts provides more detail, but here we focus on the different hats we wear in both trusts and companies.

This is important because in most cases, the same people are shareholders / beneficiaries AND directors / trustees. In the case of companies, they are also employees and managers. Employees' and managers' terms and conditions are meant to be in their employment contract, but the others are not so clear. In trusts, they may also be settlors - specifically or deemed.

Shareholders and beneficiaries generally have relatively few rights, even though they are the intended recipients of the benefits of the trust / company. They have rights to some information, and in the case of shareholders, elect (or remove) directors. Most importantly they have rights to the value generated.

Directors / trustees are the decision-makers for their entity. However, this is where a fundamental difference needs to be appreciated. A company is a separate legal person. The directors are its mind. As long as they behave responsibly (e.g. ensuring all actions are legal, taking proper safety precautions, not trading while insolvent, etc), they are protected from any personal liabilities. A trust, on the other hand, is not a legal entity. It is the trustees who own the assets of the trust, and who owe the liabilities of the trust. Often the trust deed will limit their personal liabilities to the assets of the trust, but of course, this can only be relied on if all actions of the trustees have been responsible.

An important consideration is that when trustees change, the ownership of the assets (and the liability of the debts) changes. There is a special provision that ensures imputation credits are not lost (as they usually would be if a company is owned personally). Property (including real estate) is another issue. If a trustee changes, the legal ownership changes. People need to be particularly aware of the recent bright-line tests.

I should note at this point there is no legal hierarchy among directors / trustees. There is no such thing as a "silent" director/trustee. They are found liable as a group, it is usual for action to be against them all - but if some appear easier targets than others, that is where the most effort will be made.

The big lesson is: when making decisions, what hat are you wearing? Having decided that, what responsibilities do you have to consider?