Choice of business and asset holding structures

There are a number of different asset holding structures which can be used to operate a business or to hold investments. You choice between them needs to have regard to the degree of risk faced, the circumstances of the business, the requirements of other stakeholders, the taxation implications which arise from the different structures and the associated costs.

Reducing Risk

If reducing risk is one of the important considerations in your business, then there are a number of important principles which should be followed. We have expressed these in general terms as preferences because one approach is not applicable to everyone and there will always be exceptions to general rules. It is essential that an experienced adviser be involved in establishing and maintaining or reviewing your business risk management strategy.

It is generally preferable to have the business operated by a different entity to the one which owns assets.  This reduces the exposure of assets if there is a claim on the business not covered by insurance.

Effective Business Insurances

Business insurances should be appropriately effected, ensuring the correct entity is insured, the level of cover is appropriate and that any requirements of the policy are met. We can review your insurances in conjunction with your insurance broker or adviser.

Right Business Structures

It is generally preferable that only one business is operated by an entity. Separate businesses should be separately owned. This is to reduce the risk that a claim on one business will impact on another. While it is not unusual that one business will financially support another, it should be the owner’s choice that this happens and it should not happen automatically.

Family members who are company directors should preferably not own assets and family members who own assets should preferably not give guarantees to the business financiers or suppliers. While this is sometimes difficult to do, it should be a guiding principle.

Superannuation for Asset Protection

Superannuation is a very attractive holding structure for long term assets. Superannuation assets have a level of protection from liquidators and bankruptcy trustees and superannuation is a low tax environment in which to accumulate your wealth. We can work with you and your licensed financial planner to arrange superannuation assets in this form or we can discuss the suitability of your own superannuation fund.

It is also essential that the business and asset holding structure is not too complicated. If it is, then there is a significant risk that the benefits of it will be reduced by its operation being different from how it was intended to operate. For example, the protection from creditors of an asset holding trust can be lost if the trust undertakes business activities.

As a general rule, if you cannot explain your business and asset holding structure in one sentence – it is too complicated. As illustrated above, the mere fact a structure is too complicated can be a risk factor of itself. We can review your business structure and compare how it is being used compared how it could be used to minimise business risks.