Small Business. Appropriate Legal Structure

When setting up a new business or considering a restructure, important considerations as to the type of structure, how assets are to be held, how the business is to be conducted, and how personal assets can be protected are all matters that are deserving of careful consideration.

Protecting assets

A fundamental starting proposition is that individuals engaged in business are generally wise to have a structure where their personal assets are not exposed to the risks associated with their business undertaking.

Thus, for example, the individual’s primary residence should be owned by a person not associated with the business.

Anyone in business will be aware of the risks that a business runs. Those risks include the financial risks of the business succeeding or failing. It also includes all of the regulatory requirements that now exist and where a business may be exposed to penalties and fines. For example, breaches of Occupational Health and Safety legislation, Fair Work Act matters and so on.

Given that exposure, it is thus wise to separate assets so that those connected with the business (and which are essential to the business) may be in the trading entity but those that are not essential to the business are held separately. It may also be appropriate for assets that are used in the business to be owned by an by another entity then leased to the business. The intention being that the trading entity is then likely to have minimal assets and personal assets are not exposed to the risks of business.

When considering the structure, apart from the desire to protect assets, consideration ought also to be given to whether the business is conducted in partnership, in a incorporated body, or through a trust. All of these matters require careful consideration and advice.

Author: Paul Stephens