The most important decision when starting a business is related to the legal structure of your company, tax implications, personal liability and flexibility of the ownership structure. It is not easy to decide which type of legal structure to choose. The main questions to answer are:
- Which structure gives you and your business more opportunities and helps achieve your organisational and personal goals?
- How to limit liability risks in your business structure and protect your assets?
- How to protect your assets from business and personal creditors?
You can achieve all objectives through the proper structuring of your business and funding.
Asset protection strategies include incorporation separate from your business legal entity, for example partnership, trust, foundation etc. It is essential that the operating business doesn’t own any of your personal assets so that if your operating business creates liabilities your personal assets are not undermined. By creating different structures you segregate risk. To choose the structure that works best for you depends on your assets and potential creditors as well. You also have to remember that external claims to your company are not limited only to its assets and sometimes may be subject to your personal assets.
Let us look more closely at most often used structures for asset protection: Trusts and Foundations.
Trust is an agreement between settlor (owner of assets) and trustee. And to be effective it can not be registered. Document signed between both parties is Trust deed, where beneficiaries’ terms and conditions need to be listed. Under a Trust Deed the settlor transfers his assets to the trustee and trustee needs to hold on to these assets for the sole benefit of the beneficiaries.
Foundation in turn is a legal entity with its own legal personality (similar to a company). The operation of a Foundation is based on a Charter which indicates the will of the founder. The foundation is managed by a Council (number of Council members depends on jurisdiction). The council has an obligation to act honestly and in good faith with a view to the best interests of the Foundation.The Founder also appoints a Guardian who can monitor the Council according to the Charter and bylaws. A Foundation provides more flexibility for the founder in terms of authority and control.
There is no unique solution for everyone, it always depends on your personal circumstances. To find out more please contact us at email@example.com.