Business Structuring Advice and Asset Protection
Limited liability of a company
Providing the company does not trade whilst it is insolvent, the company is only liable to its trading partners and creditors for the value of its assets or shares. If the assets of the company are only its shares of $1.00 each, the total amount that any creditor could obtain from the company is $2.00. The director of the company is not personally liable for any debts or actions unless the company trades whilst it is insolvent;
Reduce your Tax
A corporate structure, either through a company or a trust, has flexibility in relation to the distribution of the income generated through the business. The husband and wife and other family members can be used to distribute income. There is also the ability to pay franked dividends through the company and limit the tax payable to the corporate tax rate (currently 30%);
Contracts are with the company – not you personally
Providing no personal guarantees have been given by the director/s, in any contractual dealings with trading parties, the contract is entered into in the name of the company and therefore in any contractual disputes, the right of action is against the company and not against the director/s or the family members personally. This means that if the company is sued and a large judgment is obtain against it for damages for breach of contract, the successful party can only extract the value of the shares from the company (i.e. $2.00). There is no action against the director/s personally in these circumstances.
Companies and trusts dont “die”
No succession issues – a company cannot “die”. If the director of the company dies, the company continues operating as it did as normal. The only requirement is that a new director take the place of the deceased director. The same logic applies to a trust. It does not cease to operate because the director of the trustee company passes away. Normally, the spouse or partner of the deceased director will take their place in the company or the trust and continue to operate the business entity on behalf of the family.
Ensuring that your business structures marry up with your estate planning
Most people don’t realise that their companies and trusts continue on even when they die. It is therefore important that your Wills accurately reflect your business entities and your asset ownership. Simple Wills quite often cannot take these entities into account and, to a large extent, the Wills are useless.
If a director of a company or the person who controls the trust dies, it is essential that appropriate Powers of Attorney or succession provisions are built in to the documents to ensure that the partner or spouse of the deceased can operate the business entities without interruption.
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