Business structures and asset protection
A variety of issues need to be considered when selecting a business structure and these will vary according to each particular case. Tax is an important concern, but should not be the main reason for choosing a particular structure. A key consideration should be asset protection.
So what is asset protection?
Roughly, it is about minimising exposure to risks in such a way that you may be able to protect assets to mitigate the damage if someone were to make a claim against you or your business.
Normally we want to ensure that:
- Our assets are sheltered from attack from creditors, bankruptcy or divorce
- Our personal and business assets are protected for future generations
- The assets we pass to our children are protected from creditors, bankruptcy or divorce
Most families wish to protect their wealth, whether it be a business, investments or the family home, from the clutches of third parties.
When considering asset protection, the old saying: "Don't have all your eggs in one basket" should be applied. We almost always recommend that clients should hold separate types of assets and businesses in separate entities.
The best way to shield an asset is to have a number of defence mechanisms in place. These mechanisms may include:
- Reducing the possibility of being sued – often hard to control
- Having adequate insurance cover – adequate cover is essential
- Owning assets in a protected structure - ensure that those at risk do not own any assets
- Other protection techniques – for assets that already belong to an unprotected entity
By structuring, we are talking about the entity (or entities) through which you operate your business or own your assets. At a quite simple level, common structures include:
- Individual (i.e. sole trader)
- Trust - discretionary, unit, hybrid
Ideally, there would be an optional, "one size fits all" structure for different types of ventures to suit all of us. Unfortunately, this is not the case, as each structure has its pros and cons and, ultimately, the best choice, in respect of a particular purpose, will depend on its particular circumstances.
At Goodwin Chivas we have a team of qualified professionals equipped to assist you in making the right decision. We have a deep understanding of the asset protection and structuring strategies available and the specific attributes of each option to determine if it suits your needs.
If you wish to know more about asset protection, please contact one of our accountants