You’ve spent years building it. Here’s how to keep it.
Protecting your business, and the wealth you have built through it, at every stage
For most business owners, the business is the biggest asset they have. It pays for the family home, builds the super and funds the family trust. But the risks of the business can reach all of those things too.
That means there are two things to protect: the business itself, and the personal wealth you have built through it.
The protection you need also changes as the business grows. Here is what to put in place at each stage.
“No single document protects both the business and the wealth it has created.”
Most owners only find out what is missing when something goes wrong.
Nine protections, four stages - Your roadmap
01 Shareholders Agreement
Clear rules for decisions, disputes and an owner leaving.
02 Trading Terms and Conditions
Interest and security, so you are protected if a customer fails.
03 Asset Structuring
Valuable assets held outside the company that carries the risk.
04 Securing Loans to Your Company
Money you have lent the business, documented and secured.
05 Option Agreements over Related Entity Premises
An exit from the business includes an exit from the building.
06 Holding Assets in the Right Name
The family home kept away from personal guarantees.
07 Family Trust Review
Know who controls the trust if you die or lose capacity.
08 Buy/Sell Agreement
An insurance funded buyout if an owner dies or loses capacity.
09 Estate Planning
Testamentary Trust Wills that keep assets protected.
Overleaf: what happens if each one is missing, and what happens when it is in place.
Stage 01 Starting Out
Set the rules and protect your cashflow from day one.
01What happens if… You and your co-owner fall out
Your BusinessThere are no agreed rules for decisions, disputes or exits. The business stalls while the owners argue, and no one knows how a departing owner’s share will be valued or bought.
A Shareholders Agreement sets out how decisions are made, how disputes are resolved and what happens when someone wants to leave. Everyone knows where they stand.
The fix:Shareholders Agreement
02What happens if… Your biggest customer goes broke owing you money
Your BusinessWith no security, you join the back of the queue of unsecured creditors and may recover very little.
Your trading terms let you charge interest on overdue accounts and take security, including by caveat or PPSR registration. You stand as a secured creditor. This is especially important in the trades.
The fix:Trading Terms and Conditions
Stage 02 Growing
As the business builds assets, keep them away from the risk.
03What happens if… The business is sued
Your BusinessThe company that trades, signs contracts and employs staff carries the risk of the business. If its assets sit in the same company, they are exposed to that risk.
The assets are held in a separate entity and leased back to the trading company, with security registered on the PPSR, which helps keep them out of reach. Stamp duty and capital gains tax are considered before any transfer.
The fix:Asset Structuring
04What happens if… The company fails and you lent it money
Your WealthOwners often put their own money into the business without documenting it. An undocumented loan ranks as an unsecured debt.
A formal Loan Agreement and a General Security Agreement put you in a much stronger position.
The fix:Securing Loans to Your Company
05What happens if… A partner leaves but still owns part of the building
Your WealthWhere the premises are owned by a self managed super fund or another related entity, an outgoing owner can be left holding an interest in the building after leaving the business.
Option agreements over the premises owning entity tie an owner’s exit from the business to their exit from that entity.
The fix:Option Agreements over Related Entity Premises
Stage 03 Protecting the Family
Keep the wealth you have built safe from business risk.
06What happens if… The bank calls on your personal guarantee
Your WealthDirectors are exposed to claims for breach of directors’ duties, and most owners have signed personal guarantees. Everything held in your own name, including the family home, can be at risk.
The family home is held by the lower risk spouse. In many cases it can be transferred without stamp duty or capital gains tax, without changing either spouse’s family law rights, and without refinancing joint loans.
The fix:Holding Assets in the Right Name
07What happens if… You die and no one can run the family trust
Your WealthAssets in a family trust do not pass under your Will. Many deeds were drafted years ago and do not deal properly with what happens when a key person dies or loses capacity.
A review of the trust deed confirms who will control your trust through the trustee and appointor, identifies any tax issues, and the deed is amended where needed.
The fix:Family Trust Review
Stage 04 Passing It On
Plan for the moments nobody plans for.
08What happens if… Your business partner dies suddenly
Your BusinessA Shareholders Agreement usually gives an option to buy, but does not force anyone to buy or sell. You may find yourself in business with your partner’s estate or family, who may need cash, not shares.
Each key owner holds insurance equal to the value of their interest. The insurance is paid to their estate and the agreement requires their interest to pass to the remaining owners. The business continues and the family is paid fair value without a dispute.
The fix:Buy/Sell Agreement
09What happens if… Your spouse dies before you
Your WealthAssets moved to the lower risk spouse simply pass back to you under their Will, returning to the spouse who carries the business risk.
Testamentary Trust Wills keep the assets protected after death, and the right executors manage your estate and take control of structures such as your family trust.
The fix:Estate Planning
The magic is in the doing
None of this is complicated, and much of it can be done at the same time. Wherever you are on the journey, the best time to ask these questions is before you need the answers.
You have worked hard to build your business and your wealth.
If any of these moments gave you pause, it is worth a conversation. Contact Dennis Danaher at Danaher Moulton to discuss what you need to protect both.
This article is general information only and is not legal, tax or financial advice. You should obtain advice on your own circumstances before acting.
