NOT SO RISKY BUSINESS
How can I protect my personal assets from the business risk?
Tips for protecting your assets.
This is a question I am often asked when a client seeks advice about buying an existing business or franchise.
When you set up a company you need to: • protect personal assets from business risks as much as possible, and • minimise tax both along the way and on eventual sale of the business (CGT tax advice).
How do we approach these issues?
The answers require a detailed understanding of the client and their personal circumstances, how they hold their own current assets, the business they are acquiring, the risk involved and then picking the right structure.
PERSONAL CONSIDERATIONS
a. Do you own your own home or other valuable assets and, if so, in one or both names? b. Are there mortgages or other securities over the property and assets, so we can determine what actual equity may be at risk? c. Will your partner or spouse work in the business? Are they involved in their own business and, if so, is it a high-risk activity? d. Is the business being purchased high or fairly low risk; for example, does it have to have large stock holding, large creditors, debtors who don’t pay? e. Should you purchase the business assets (contract for sale of the business) or purchase the shares and thereby the company (sale of share agreement)?
There are different considerations and issues to address if buying shares in a company; greater warranties are needed from the vendor of the shares.
CONSIDERING THE ABOVE ISSUES REQUIRES SPECIALIST LEGAL, FINANCIAL AND ACCOUNTING ADVICE.
It should also include discussion about estate planning issues.
Also consider what business risks can be covered by insurance. Understanding directors obligations and liabilities where a company is set up is also important, as directors can be made personally liable for a company’s unpaid taxes, superannuation to employees and the risk of insolvent trading.