Looking for advice around the best potential structure for a company so that its assets are protected. Some accountants have suggested:

1. Setting up a private company and allocating its shares to a discretionary trust
2. Setting up a private company and allocating its shares to a discretionary trust where the trustee is a private company
3. Setting up a private company and allocating its shares to a discretionary trust where the trustee is another discretionary trust

Which do you recommend?

Hi Mireille,

I am not an accountant, but option 2 seems to be the most logical one. I am not sure what would be the benefit of option 3.

regards

Hi Mireille

Assuming you were to take out finance for your business and grant the financier a general security interest over the company (in the old language a fixed and floating charge), then whatever shareholding structure you have in place will not protect the assets of the company if you fail to service the facility granted to you by the financier.

If you are more concerned about product liability claims etc., I would suggest you may be best to speak to an insurance broker.

I would be more concerned to ensure that your personal assets are protected in the event that the company was to fail or a claim was made against the company that is not fully covered by insurance.

Putting aside the asset protection issue, you may want to speak to your accountant about the tax effectiveness of the structures being proposed.

NOTE, a trust cannot act as a trustee as a trust is not a legal entity in the same way that a company or a person is. Therefore, I'd suggest that the third structure proposed is not an option.

All the best with your venture.

Hi Mireille,

Option 2 is your best bet. You can change the directors and shareholders of the trustee company (if need be) easier than changing a trustee. You therefore you achieve flexibility of income/capital distributions as well as asset protection.

Good luck.

Hi Mireille,

It would be remiss of me to recommend an option without understanding your personal circumstances in more detail (Although we can rule out option 3 as it is not legally possible). Asset Protection is one of two key aspects to consider when choosing business/investment structures (the other being tax effectiveness) and it is smart that you have chosen to seek advice on this issue.

Mireille it would be easy to simply recommend a structure which, on face value, provides a level of asset protection. However without ensuring the structure is tailored to your personal situation, as well as your short & long term aspirations, we find the asset protection the structure was set up to provide can often fall flat.

I would be more than happy to personally walk you through some scenario's where certain structures could provide asset protection in your situation, we usually find having a visual representation of the structure & scenario helps people understand how they function once set up (which is why we use whiteboards & TVs to demonstrate this).

Mireille if that is of interest please feel free to 'Contact Expert' below, we can exchange details and go from there.

Have a lovely day

Ben

I agree with both Adam and David - option 2 plus plus. Important to have the right structure for income, tax and protection.

Insurance is a key consideration as is the importance of the correct operating controls / delegations.

In my opinion build for growth thus structure to give you the most flexibility around profit streaming and tax benefits but cover the backside at the same time.

Just another thought to keep in mind, is that if you are seeking protection from a Lender against he assets in these structures, is that it is the norm for the Lender to ask for a personal guarantee to the liabilities of the borrowing entities.
Therefore, while you may have separation from a legal sense, you can still be sued and have your personal assets at risk under any guarantee that you provide
This would only benefit the lender and other claims/representations could be protected as advised.
Just a thought to keep in mind.
Regards
Ken Olds
Mortgage Broker
Customers First Mortgages & Insurance
1300 ASK KEN