Running a small business can be rewarding – but it can also be risky. If you work hard to build your business, but something goes wrong, your personal assets – your home, savings, investments – are all at risk. This is why you should think about asset protection.
What is Asset Protection?
Asset protection is about structuring your personal and business assets and activities so that if your business runs into trouble, your personal wealth is protected from claims by creditors. Usually, this involves the use of companies and trusts to own assets or to run businesses.
Why Small Business Owners are Vulnerable
In Queensland, many small businesses are set up as sole traders or simple partnerships. While these structures are easy to establish, they offer little to no separation between your business and personal assets. You are the business owner and you are liable if something goes wrong. This means your personal assets will be taken to pay business debts or liabilities.
Even with the use of companies and trusts, you will still face certain personal liabilities – like personal guarantees on loans, unpaid superannuation, or for a breach of director’s duties. Your personal assets may still be at risk.
Key Asset Protection Strategies
Choosing the Right Structure for running a business will provide a buffer between business risks and personal assets. Companies and trusts are common tools, but the which is the right structure for you? This depends on your circumstances. The wrong structure can be expensive to fix later, so professional advice upfront is essential.
Choosing the Right Structure for investments will ensure that investment assets are protected not only from your business but other risks you face personally. These risks might be from your role in the business or as simple as the risks of driving your car or interacting with other people.
Separating Valuable Business Assets by holding them in a separate structure can protect those key assets from the risks of running the business. This may allow you to continue the business in another structure even if the business faced liability.
Reviewing Contracts and Guarantees can ensure that you face no more liability or risk than is necessary. Many business owners sign personal guarantees without fully understanding the implications. Before signing, consider taking legal advice on exactly what you are up for.
Why ask a lawyer? Accountants often assist with asset protection structures because of the accompanying tax planning benefits. But accountants are not focused on risk. That is lawyer territory. A poorly established structure may not protect you at all, or may not take the protection as far as you think.
Why Act Now?
Asset protection works best when it’s set up early – before there’s a problem. Once a claim is looming, it’s often too late. If you move assets when you already face risk, a trustee in bankruptcy may be able to reverse that transaction well into the future.
Small business owners work hard. Too hard to risk it all if something goes wrong. Take advice and ensure you are protecting yourself in case something goes wrong.
Pacific Law specialises in asset protection and can guide you through putting the right structure in place to give you peace of mind and protect your family.
Contact Pacific Law at info@pacificlaw.com.au
