The correct business structure is essential for business improvement, tax minimisation, wealth creation and asset protection. Broadly, asset protection entails minimising your exposure to risks so that you may be able to protect or quarantine assets to reduce the damage if someone were to make a claim of some sort against you or your business.

Have a read of our 5 Principles of Business Structure and Asset Protection.


1. SEPARATE RISK FROM ASSETS

Business risks should be kept separate from business and investment assets. When running a business, you have "risks" whenever you enter into a business relationship with customers, suppliers/creditors, and employees. In most cases, the minimum business structure required will include a trading entity and a separate asset holding entity. We call this a "level one" Structure. The asset holding entity should never have business "relationships" - it should only invest or loan funds to related entities.


2. CHOOSE A “RISK-TAKER” AND AN “ASSET-HOLDER”

Within a Family Group, you should choose one individual to be a "Risk-Taker" and another individual to be an "Asset-Holder". The Risk-Taker should be the main person involved in your business and therefore should be the director of any trading companies (or trustee trading companies). The Asset-Holder should not be, or act, or seen to be acting as a director of any trading companies. The Asset-Holder should be "in control" (as a director, trustee and shareholder) of any asset holding entities. Where possible, the Risk-Taker should not own any assets in their individual name. The Risk-Taker should be an "unattractive" target to take legal action against. In most cases, the Family Home should be owned 100% by the Asset-Holder.


3. SEPARATE BUSINESS RISKS FROM BUSINESS ASSETS

Establish a business Asset Holding Entity (separate from your personal Asset Holding Entity) and transfer all Intellectual property (IP), Trade Marks, Patents, Logos, Business Names, Plant & Equipment etc. to this new entity.  Establish a license agreement to License the use of all IP from the business Asset Holding Entity to the trading entity, and a service agreement / rental agreement to record the lease / rent of other business assets. The business Asset Holding Entity should not have any other relationships with other parties except for the trading Entity. If the trading entity fails, the assets in the business Asset Holding Entity should be protected, and a new trading entity could then be established and new Agreements could be entered into to use the assets.


4. DIFFERENT BUSINESSES SHOULD OPERATE FROM SEPARATE ENTITIES

To prevent the possible failure of one business venture affecting any other business ventures, different businesses (or divisions within a business) should operate from separate business entities. If water leaks into a Submarine, the compartment can be “locked-off” to prevent water getting into other compartments and sinking the submarine. In the same way, if problems develop within a Business (it fails, legal action is taken against it, etc), it should be kept separate from other successful business / divisions so that these can continue.


5. REGULARLY MOVE ALL SURPLUS FUNDS FROM THE “RISK” SIDE TO THE “ASSET” SIDE

Ensure that income from your Trading entity does not remain in the entity as working capital. If your Trading entity has legal action taken against it, then any cash assets are at risk. Instead, fully distribute the profits from your Trading entity at least once each quarter, and to provide working capital lend them back by your Asset Holding Trust using a Secured Loan Agreement.
Ensure that any Trading entities have the minimum of assets (small amount of cash, debtors and stock only), and that no loans remain owing from individuals or related entities TO the Trading entity.



For some information on the different possible business structures available to you to best protect your assets, check out our infographic, or, as always, give us a call if you have any questions.