Asset Protection

  
Review of Assets and Business Structure

All businesses that grow, may out-grow their original structure at some point or other in time. This is because the structure selected should suit that type of business, the individual(s) concerned, the assets owned and the risk to those assets and others owned elsewhere. Over time things change, and the business structure may have to evolve also. You should look at this question with your accountant every few years.

The selection of the correct structure is a moderately rigorous exercise, whereby an understanding of the parties involved, and their individual state-of-affairs is paramount, along with the type of business and its stage of life. Also, in the selection of a structure, it may involve more than one.

The different structures are shown below. This list is not exhaustive, and each has its own layers of simplicity and suitability for the task at hand, as they all have different asset protection and income tax implications. For selection purposes, come and have a chat with us to ensure your structure is correct going forward:

Sole Trader
Partnership
Family Trust
Unit Trust
Hybrid Trust (a mixture of fixed and discretionary)
Company (private, public, listed or un-listed)
Self-Managed Super Fund
  

Capital Gains Tax Issues and Planning

Since 19th September 1985, Australia has had CGT legislation. You pay the CGT at your marginal income tax rate.

The amount assessed depends upon the:-

Length of time owned,
Purpose for which it was purchased,
Retirement of owners, and
Small Business Rollovers and Relief. 

Individuals who own shares, and who may have elected to join a Dividend Reinvestment Plan need to understand that each time you receive shares instead of the dividends, the company has kept its cash, watered-down the equity further and you have purchased shares. As each share sale is on a First In First Out basis, you must match or apportion the sale in this way to asses whether a gain or loss has transpired. For example, if you owned CBA shares from when they floated onto the Stock Exchange in 1992 at $2.45each and have participated in the DRP, and those shares were sold at $50.00 then you must apportion each purchase to the sale. In this case there would be thirty (30) calculations, and they all take the same amount of time to calculate.

If you are a small holder of shares, the DRP does not make sense. So take the cash and invest it wisely.

CGT is a particularly complicated tax because of its layers of complexity, consequently you should understand that issues around the sale of assets, succession and estate planning in the event of retirement and/or death, and any transfer of assets may incur CGT. Planning and advice are vital to ensure there are no surprises.
  

New Business Start-ups and Structures

Firstly, understand the idea/project.

Secondly, "Keep It Simple Sir/Madam" (i.e. the KISS Principle).

Thirdly, ensure you ask for advice from your accountant and solicitor before you sign anything; so engage with an appropriately qualified professional. MMV has an affiliation with a seasoned commercial lawyer who can assist in these matters.

Meet with your accountant to ensure an appraisal or valuation if necessary is carried-out of the business you wish to buy, because you make your money when you buy not when you sell; never pay too much more than it is worth. The question must be asked, “What is it really worth? Am I buying an investment, or a lemon? Will the business give me a good return for my labour and capital, or am I just buying a job?”
  

Risk Management Strategies 

The selection of the correct structure to operate your business unit within, and to protect your assets, is paramount. 

You need to consider your Intellectual Property around issues of copyright, trade-marks and Registered® Trading Names etc. Any identifiable IP you do have should be documented and protected. 

If the business revolves around one or a few individuals, without whose presence the business would cease, need to be appropriately insured. Key-Man insurance held by the business would be the goal; so that if the worst happened, they may find a replacement and continue without too much business interruption.

If individuals and other entities are in business together, then to protect these equity in the business, there should be as a minimum a ‘Shareholder’s Agreement’; which sets-out the what will happen in the event a certain circumstance occurs. A part of this process should include a ‘Buy/Sell Agreement’ so that surviving spouses can be paid-out, and the equity bought-back by the surviving partners.

  
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