In your position as a business owner or director, your personal and business assets could be at considerable financial risk if you fail to put strategies in place to protect your personal assets. As a director you can be subjected to personal liability that includes exposing your personal assets even if you have a company business structure or other entities such as trusts in place. 

A company or trust structure creates a separate legal entity that separates your personal assets from the business activities. Nevertheless, it’s important to understand that as a director of a company, you may still be subject to personal liability which could put your personal assets at risk.

A common situation where a company director may face personal liability is when they act as a guarantor for finance. Bank managers will frequently require a company director to provide a personal guarantee in order to secure a business loan. This type of personal guarantee could hold you personally responsible for the repayment of a business loan if your business is unable to service it.

You may also face personal liability as a company director for company debts in the situation where your business is declared bankrupt or the company suffers losses caused by a breach of director duties.

How to protect your personal assets

Here we outline four of the key strategies available to you for protecting your personal assets from potential creditors or litigation:

#1 Business insurance

It is prudent to determine your risk exposure (including if you are in a high-risk industry) and identify appropriate business insurances to protect your business interests. Your asset protection strategy should at a minimum include public liability and professional indemnity insurance but may extend to others such as business interruption insurance, as appropriate.

#2 Ownership of assets

Not owning them, is an effective strategy for protecting your assets as a company director. The ownership of your home and other significant personal assets can be owned by your spouse or others who are not at risk or associated with your business.

#3 Business structure

Reviewing your current business structure can identify safeguards for your assets while ensuring the structure continues to match your requirements. There are advantages and disadvantages associated with different business structures, including legal and tax implications. However, what’s of most importance is that your business structure aligns with your individual circumstances and business needs. In this regard, we can provide recommendations and a tailored structure report to help you understand your options as well as strategies for protecting your personal assets.

#4 Reduce exposure

Strategies that minimise your risk include the holding of certain assets in a discretionary trust or superannuation trust; limiting personal guarantees; and considering who may be ‘at risk’ when appointing Trustees.

Your next step

An important part of business management is risk management. If you have not considered the consequences if your business faced litigation or financial difficulties and how this might affect your personal assets, it’s time to seek advice. We can help. Please contact your accountant at Rosenfeld Kant on (02) 9375 1200 or email  gary@roskant.com.au, raul@roskant.com.au or elias@roskant.com.au

Partnering with you to deliver efficiencies, growth and success for your business.

The information (including taxation) contained within this article is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Rosenfeld Kant strongly suggest that no person should act specifically on the basis of the information in this document but should obtain appropriate professional advice based on their own personal circumstances.