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As a business owner, you bear more risk than the average person. This means safeguarding your assets is even more crucial than it is for most Australians. Asset protection for business owners is not just about preserving wealth, it’s about ensuring the longevity and sustainability of your business.

If you’re running a family business, that will probably be very close to your heart.

Your business is most likely your primary source of income and possibly also ‘Plan A’ for your retirement nest egg. Across many decades of advising business owners, the main reasons we see for not protecting their assets (and by extension their livelihood and retirement) are:

1. They feel they are too busy to think about it, and
2. They don’t fully understand all the risks involved.

In an ever-changing and increasingly unpredictable world, having a comprehensive asset protection strategy in place can mean the difference between a flourishing business and a secure family lifestyle… and a house of cards.

Let’s look at 7 important aspects of asset protection for any business owner:

1. Understanding the Importance of Asset Protection

For business owners, assets are the backbone of their operations. From tangible assets like real estate and machinery to intangible ones like intellectual property, the value encapsulated in these assets can determine a company’s current and future value.

2. Structuring Your Business Correctly

One of the first steps in asset protection for business owners is ensuring your business is structured appropriately for your type of business and the stage you’re at. Different structures like sole traders, partnerships, trusts, and companies offer varying levels of protection and risk exposure.

• Sole Traders and Partnerships: These structures expose personal assets to business liabilities. They are straightforward but offer minimal protection.
• Trusts: Setting up a discretionary trust can protect assets from potential future creditors. They separate the control of the asset from its beneficial ownership, offering a protective barrier.
• Companies: This structure separates personal assets from company assets. Company directors are responsible to act in the interests of the company and generally aren’t responsible personally for company debts, unless personal guarantees are given in capacity as a director. A director may also be responsible if the business goes into liquidation and it has been trading insolvent.

3. Implementing Agreements and Contracts

Doing “business on a handshake” sounds noble and very down-to-earth Australian, but considering disagreements in business are as common as they are in everyday relationships, it’s unwise.

Documenting your agreements is always the way to go. Sure, it incurs some legal expenses initially, but it could save you a large portion of your wealth down the track. 

Properly documented agreements define rights, responsibilities, and outline the course of action in the event of disputes. 

• Shareholder and Partnership Agreements: These agreements outline the relationship between shareholders or partners, reducing potential disputes and ensuring a mechanism for resolution if they arise. They also define how a partner or shareholder’s portion of the business will be valued if they wish to exit (i.e. sell out), and whether the remaining partners or shareholders need to approve incoming partners or investors.
• Supplier and Customer Contracts: By defining the terms of your relationships with suppliers and customers you ensure clarity and reduce the potential for legal complications.

4. Insuring Your Assets

Insurance is a cornerstone of asset protection. It serves as a financial buffer against unexpected calamities. Types of insurance cover to put in place includes:

• Public Liability Insurance: Protects against claims arising from injuries or damages to third parties within your business premises.
• Professional Indemnity Insurance: Essential for service-based businesses, this covers against claims arising from professional advice or services rendered.
• Property and Contents Insurance: Safeguard your physical assets against theft, damage, or natural disasters.

5. Regularly Updating Your Asset Protection Strategy

The business landscape is dynamic. Laws change, economic environments shift, and businesses evolve. Regular reviews of your asset protection strategy will ensure it remains robust and up-to-date. Engage professionals to audit and recommend changes to your asset protection mechanisms. Have asset protection as a standard agenda item on your annual review with your business accountant.

6. Limiting Personal Guarantees

While sometimes necessary to secure financing, personal guarantees can expose personal assets to risk. They can negate the asset protection benefits of structures such as companies, because they can turn what would have been a liability for your company, into a liability for you personally as a company director. Whenever possible, negotiate terms that avoid the need for personal guarantees.

7. Asset Protection of Intellectual Property

Your brand, inventions, designs, and trade secrets can be as valuable as any physical asset. Protect your business’ uniqueness with trademarks, patents, copyrights, and confidentiality agreements. These legal tools restrict others from using, selling, or replicating your intellectual assets, preserving their intrinsic value and increasing your competitive advantage.

Safeguarding Your Legacy

Asset protection for business owners isn’t a luxury, it’s a necessity. By combining the right structures, agreements, insurance, and regular reviews, as an Australian business owner you can ensure that your family business not only survives but thrives in any environment.

Your Next Step

Make a time with us to review your asset protection strategy and structures to ensure they’re aligned with your goals and the evolving demands of the Australian business landscape.