Asset protection is often viewed as a luxury for the rich, but it is really more successful when implemented as early as possible. You wouldn’t start a business if you didn’t believe it would be lucrative!
You shouldn’t wait for your business to become big and profitable before prioritising asset protection. After all, for someone who is just starting, the financial impact of a lawsuit will be far more significant than for someone who is already well-off.
Several potentially disastrous life situations can be mitigated by employing asset protection measures. This can include a divorce, a death in the family, bankruptcy, or any legal action taken against your business.
This article will run you through some basic asset protection tactics.
Mitigating Risks
Minimising your risk exposure is easier said than done. However, this is one of the most helpful ways to protect you and your assets.
If it is not in your professional field of business, it is best not to do a task. Leave these tasks to someone qualified. Doing work you aren’t eligible for puts you at risk of lawsuits for negligence.
Getting an Insurance Coverage
Every firm should have public liability insurance as part of its normal insurance package. While you may think this is costly initially, you may change your mind when you need to pay $10,000,000 for settlement.
With the right insurance broker, you may even save more money through your insurance coverage. You can seek the help of your business accountant or insurance agent to help ensure that you are getting enough coverage for your business.
Transferring Your Assets
Before you even get in trouble for any legal matter, ensure your assets are already protected by transferring them. Don’t own any assets under your name.
You can have a trusted family member to keep your relevant assets within a legally separate entity.
You can also hold your money through self-managed super funds (SMSFs). However, you must have this ready in place by the time you start your company. Should you fail to do this, your property will not be protected even if you sell or transfer them.
If you file for bankruptcy, following the paper trail and seizing assets is within the court’s purview. For four years following the filing of the bankruptcy petition, a court may examine any transfers of assets.
Capital gains tax difficulties might arise if you transfer assets at a later period, resulting in unnecessary tax payments. If you hire professional bookkeeping services, they can help you transfer your assets and ensure you are not overpaying.
Business Structures to Protect Your Assets
Business owners can employ a variety of assets to safeguard and exchange their assets. Here are some business structures you may want to consider to protect your assets:
- Partnerships with another entity will take on the features of that entity. These partnerships can work if you partner with other companies and not sole traders.
- Companies are considered separate legal entities, so business assets are different from your personal assets. Should legal action be taken against your companies, your and the other shareholders’ assets are safe.
- Discretionary trusts and unit trusts are considered trading entities. Should legal action be taken against the business, only the business decision-maker could be sued. However, you are also giving up total control of your business sales.
- Self-managed super funds allow you to purchase assets without breaching any non-arm’s length income (NALI) provisions.
Conclusion
Asset protection is not an option but a necessity. You’ll be surprised how many risks you are exposed to as a business. Make sure you have the necessary asset protection measures in place to face these risks head-on.
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