Business Structuring and Asset Protection

Starting a new business is a both challenging and exciting personally, professionally, and legally. Owning a business or undertaking investment activities can put your personal assets at risk. How you plan for and manage that risk can mean the difference between losing everything or keeping your assets.

Therefore, as a new business owner, you should separate personal assets and the liabilities of your business. Sometimes, the boundaries between your personal and business lives are unclear, making it hard to separate the two.

Asset protection is a process of undertaking proactive planning and implementing strategic techniques to protect your personal assets if things go bad.

Business Structures
Gaining the highest degree of protection for your personal assets is a job that begins early. Thus, choosing the correct structure at the beginning is important, as it can be expensive to change once in place. The reason for that is simple: if your business is well-structured, creditors will find it difficult to assess your assets. Of course, protecting your assets as a business owner is not always straightforward. It often involves complex legal and financial arrangements. That is why getting to know your options is very important.

There are various legal structures that can be used for owning a business and/or investments, including:

Sole trader
This is the simplest form of business structure. As a sole trader you are legally responsible for all aspects of your business including any debts and losses and day-to-day business decisions.

Partnership
This is a business structure made up of 2 or more people who distribute income or losses between themselves. Like a sole trader structure, partners are jointly and severally responsible for the debts of the business. Therefore, it is important to consider who you enter into a partnership with, as all partners are equally liable for the actions of the other partners. Partnerships can either be general or limited.

Company
This business structure is a separate legal entity, unlike a sole trader or a partnership structure. This means the company has the same rights as a natural person and can incur debt, sue, and be sued. As a member you are not liable (in your capacity as a member) for the company’s debts. Your only financial obligation is to pay the company any amount unpaid on your shares if you are called on to do so. However, directors of the company may be held personally liable if found to be in breach of their legal obligations.

Trust
A trust can be used to run a business. A trust is an obligation imposed on a person (a trustee) to hold property or assets (such as business assets) for the benefit of others, known as beneficiaries. If you operate your business as a trust, the trustee is legally responsible for its operations. A trustee of a trust can be a company, providing some asset protection.

Your choice of structure will depend on the size and type of business and how you want to run it. It is important to understand the responsibilities of each structure because the structure you choose may affect:
• the tax you are liable to pay;
• your potential personal liability;
• how much control you have over the business;
• the licenses you require;
• asset protection; and/or
• costs.

If you would like to start a business and find out more about your rights and options, Straits Lawyers are here to help. Simply send us an email at info@straitslawyers.com or give us a call on 8410 9069 to arrange an appointment for an interview.

Alternatively, you can book an online consultation with us via this link: https://straits-lawyers.square.site/product/online-consultation-/11?cs=true

Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.