Asset Protection Strategies for Individuals and Businesses

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What is asset protection and why is it important for individuals and businesses?

Asset protection is a relevant consideration in the establishment of any business. Effective asset protection strategies can limit and in some cases avoid liability for individuals who are carrying on a business.

Commonly, businesses are conducted via a company or trust structure. The general rule is that shareholders of a company or beneficiaries of a trust are not responsible for the liabilities incurred by the relevant company or trust. There are exceptions to this general rule. For instance, directors who are also shareholders of a company may be personally liable for unpaid tax liabilities or if the company is trading whilst insolvent.

Even so, individuals who operate a business via company or trust will be in a much better position than if they were carrying on the business in their own right as a ‘sole trader’. Sole traders are personally liable for all the debts of the business.

Another asset protection strategy is to ensure that business assets are held by a separate entity to the one which is carrying on the trading activities. This will ensure that these assets are protected from the creditors of the trading entity. For example, it is recommended that real estate be held in a separate trust (in order to maximise tax benefits) and that the trust lease the real estate to a company which is carrying on the trading activities. In this way, the real estate will be protected from creditors of the company.

Why is asset protection important?

Effective asset protection strategies can also prevent a spouse or de facto from obtaining business assets in the event of a family breakdown.

The purpose of this article is not intended and should not be taken as legal advice, as it does not take into account your particular circumstances or needs. You should seek advice from a professional advisor about the tax implications associated with any asset protection strategy before you implement the strategy.

If you have any questions relating to asset protection please don’t hesitate to contact me.

The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, FC Lawyers cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. FC Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. FC Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.


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