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Asset protection and your business

In looking at asset protection I thought of situations that have arisen for some of our clients. Let’s call them Charlie and Sarah, who are both local business people. They have good reputations and lots of jobs ‘on the go’. They each run their own business as sole traders. They also happen to be good friends. They decide one day that they think they could work really well together and grow their businesses even more if they could combine their resources.

They think of a new business name, ‘Charsa Industries’, and combine their day-to-day organisation into one business. Their businesses continue to grow and they go from strength to strength. As everything is going so well, they are good friends, and trading as a partnership seems the most straightforward way for the two previous businesses to operate as one business. They don’t really see the need set up as a company or anything, and trust each other enough to know that if one of them wanted out, it would all go smoothly…. Or would it?

Say it is 5 years down the track. Charlie is taking less interest in the day-to-day running of the business as he wants to spend more time with his young family. He and Sarah start talking about her buying out his share in the business. Sarah thinks that the price for Charlie’s share should be less now as he hasn’t put as much into the business of late, but Charlie maintains it should be a full 50% of the value. The assets are all in different names, some in Charlie’s, some in Sarah’s and some in the name of the partnership.

Then disaster strikes. Sarah falls ill and can no longer run the everyday operations of the business. So there is one partner disinterested and one partner unable to work due to health issues. The business starts to go downhill, jobs aren’t getting finished on time and bills aren’t getting paid. The creditors start lining up and threats start coming in against the business assets and also against the personal assets of each of Charlie and Sarah. Everything they built together is crumbling down around them and they may end up losing their business, their homes and their friendship all at once. As partners they are each liable for the full debts of the partnership which may need to be paid from their personal assets.

Charlie and Sarah couldn’t prevent the fact that Charlie wanted to leave the business to spend time with his family, and they certainly couldn’t have foreseen Sarah getting ill. What they could have done, however, was put systems in place to make sure that if these eventualities came about, they were prepared and protected.

Having the correct documentation in place, which can cover what happens when a business partner dies or becomes ill, wants to leave the business or if there is a falling out, as well as have appropriate insurances in place, is essential.

Getting these structures right at the beginning and making sure that you have a frank and honest discussion with your business partner before you start and while things are going well about what can happen when things go wrong, and then documenting those decisions, can save money, protect assets, avoid angst, and save friendships.

The scenario above could apply no matter what industry Charlie and Sarah are in, whether it be building and construction, manufacturing, retail, or any other type of business.

Join partners Sonja Daly and Peter Rusbourne on 24 July as they address the issues of insurance and asset protection.

Do you have the right asset protection strategies and insurance policies in
place to protect you if something goes wrong?

In the event of unforeseen circumstances, will your business survive?

For further information contact the Commercial Business & Property Team.