Choice of Business and Asset Holding Structures

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

Reducing Risk for Businesses

Reducing risk is one of the important considerations for business owners and there are a number of important principles to be followed. These are set out in general terms because one approach is not applicable to everyone, and there will always be exceptions to general rules. Rands Advisory Group is an experienced adviser which should be involved in establishing and maintaining or reviewing your business risk management strategy.

Right Structures for Business

Having the business operated by a different entity from the entity which owns the property and business assets is generally preferable. This reduces the exposure of assets if there is a claim on the business.

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

The 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 the guiding principle.

Effective Business Insurance

Appropriate business insurance should be secured, ensuring the correct entity is insured, the level of cover is appropriate, and any policy requirements are met. We can review your insurance in conjunction with your insurance broker or adviser.

Using Superannuation for Asset Protection

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

Simple Business Structures

It is also essential that the business and asset holding structures are not complicated. If they are, there is a risk that benefits will be reduced if strategies are implemented other than how they were 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 that a structure is too complicated can be a risk factor in itself. We can review your business structure and compare how it is being used compared to how it could be used to minimise business risks.