What can Business Owners and Company Directors Do to Protect their Personal Assets in the Event of Business Failure?
There are now a number of acts that make directors personally liable for debts and obligations which were previously the responsibility of their company.
Directors should be fully informed about their duties and obligations to avoid exposing them to personal liability.
A director may limit his or her financial exposure through directors’ and officers’ insurance coverage. It is however becoming increasingly unaffordable.
What is needed is a strategy to limit or avoid personal exposure.
One way is to limit the number of ‘same family’ directorships held. If the company is structured properly then you only need one director.
In practical terms this has meant that where the business principal faces personal, company-related financial exposure, the family assets should be in the hands of the non- director family member.
ASSET HOLDING ENTITIES
A separate company (not the trading/operating company) or a spouse who is not a director, should own the physical assets, which would otherwise be exposed to commercial risks if owned by the trading/operating company. Properly structured the trading entity would have the use of these assets for business purposes.
The spouse, who is not a director of the company, should be the registered owner of the family home and should not enter into company guarantees on behalf of the company. If however the lender insists on a charge over the family home, the guarantor should take a first charge over the company assets to secure their right to be indemnified in the event the guarantor is called upon to pay the creditor/bank.
WHAT ABOUT THE BANK?
Try to find a financier who only wants corporate security . The trade- off for limited security is normally higher interest rates. Debt factoring is one method of raising working capital without resorting to securing the family home.