The very nature of being a business owner or director puts you in a position of risk, and without advice, your personal (and business) assets could be at risk.
Even if you have a Company business structure or other entities such as trusts in place, as a director you can still be subject to personal liability, including exposure of your personal assets.
Are your personal assets exposed?
For those operating as a sole trader or partnership, it is widely known that you are personally responsible for business liabilities, and that your personal assets can be used to recover debts associated with your business.
While a Company or Trust structure creates a separate legal entity allowing separation of your personal assets from the business activities, as a director of a company you may still be subject to personal liability, which could leave your personal assets exposed.
One of the most common situations where a company director may face personal liability involves acting as a guarantor. Often bank managers will request a company director to provide a personal guarantee to secure a business loan. Any such personal guarantee can mean you could be held personally responsible for the repayment of a business loan if your business is unable to service it.
As a company director, you may also face personal liability for company debts if your business is declared bankrupt, or if the company suffers losses caused by a breach of director duties.
Strategies to protect your personal assets
There are many strategies for protecting your personal assets from potential creditors or litigation in the event of a poor business decision or unexpected event.
Business Structure: Your current business structure may not be appropriate for your needs. We can help you identify ways to safeguard your assets through a structure review. There are advantages and disadvantages associated with different business structures, including legal and tax implications, so what’s most important is that your business structure aligns with your individual circumstances and business needs. We can provide recommendations and a tailored structure report to help you understand your options as well as strategies to protect your personal assets.
Holding assets: As a company director, one of the most effective strategies to protect your assets is to not own them. We recommend that the ownership of your home and other significant personal assets be owned by those not at risk or not associated with your business, such as your spouse.
Minimise exposure: Other strategies to minimise your risk include holding certain assets in trusts, such as a discretionary trust or superannuation trust; limiting personal guarantees; and considering who may be ‘at risk’ when appointing Trustees.
Insurance: Appropriate business insurance, including business liability insurance, should be part of your asset protection strategy. We can help determine your risk exposure, including for high risk industries, and facilitate appropriate business insurances to protect your business interests.
Is it time to get a second opinion?
An important part of business management is risk management. If you have not considered the consequences if your business faced litigation or financial difficulties and how this might affect your personal assets, it’s time to seek advice.
If you would like a second opinion about the potential for your personal assets to be exposed, or advice about appropriate options for your personal and business circumstances, I encourage you to contact us on 03 9708 8801 or email info@rvpartners.com.au
At Robinson Voss we have over 40 years combined experience and expertise in accounting, business advisory services and big picture tax advice.
General Advice Disclaimer: The information contained within this document is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Robinson Voss Partners (RV Partners) strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.
