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Nov. 14, 2013: Asset protection - ignore at your peril

Whether you are buying a business or already operating one (or two), asset protection should be at the forefront of your mind. 

There are various ways of protecting your assets. Asset protection considerations involve trying to protect business and/or personal assets from any possible future financial setbacks, business, partnership or family disagreements or business failure.

Assets of the business generally fit into two categories: tangible and intangible assets. There are different ways of protecting each of these categories.

For example, tangible assets (e.g. equipment or vehicles) can be protected by insurance whereas intangible assets (e.g. patents or trademarks) have other means of protection afforded by the law, such as registration.

1. STRUCTURING

Correct structuring at the time of purchase can provide protection of assets, limitation of personal liability and the ability to stream income to more than one individual. Corporate and trust structures are the most common among business owners in Australia.

Any business should have a business plan dealing with all aspects of its operations and to ensure that in the event of accident or illness of key person(s), business decisions are carried out by the appropriate people. Further, if a corporate structure is part of the business set up, there should be a shareholders’ agreement in place outlining, amongst other things, exit strategy for each shareholder and how the business assets are to be split up in the future.

2. BUSINESS INSURANCE

All tangible assets of the business, which can be physically destroyed, can be protected through insurance. Insurance can also protect the financial position of a business in case of personal liability or other claims being made against the business. 

Business insurance from such an event may be the sole reason your business can survive.

Covers such as public and product liability insurance, workers compensation insurance and key person insurance are a must for most small businesses to ensure minimal financial and other strain on the business in the event of any unforseen circumstances occurring.

3. WILL

Every shareholder of the business should have a valid will, which reflects the asset distribution and what happens to the business (or your share of it) in the event of their death. The will should be updated as new assets or businesses are acquired. 

One thing to remember is that marriage nullifies any will put in place prior to marriage, unless it was made in contemplation of marriage.

4. PROTECTION OF INTELLECTUAL PROPERTY

The protection of the intellectual property of a company is important for franchisees and franchisors. However, franchisees should note that most franchise agreements do not entitle franchisees to actually own any IP within the franchise system, so, for that reason, they may not actually have any IP assets to protect.

ADVICE

Every business owner should review their business and personal assets and obtain legal and financial advice to ensure asset ownership and business structure affords appropriate protections.