How to protect yourself from your business

25 March 2016 04:08 PM | #Investor Resources

As businesses grow, it is very important that business owners consider how to protect their personal wealth from business risks, including their home.

Although operating as a sole trader is the cheapest and easiest way to set up a business, if it were to fail, any creditors of the business could look to the owner personally for payment, leaving the sole trader’s personal assets at risk.  Bankruptcy can be one way out, but this comes with serious consequences.

By trading through a limited company, the risk to a business owner’s personal assets is greatly reduced as there is a clear separation between their personal assets and their business.  Normally, liability is limited to the value of the shares in the business.  A limited liability partnership acts in much the same way, limiting a business owner’s personal liability if the partnership were to fail.

When signing anything on behalf of your business, it is always important to check the small print and to seek legal advice if you are unsure about anything you are signing.  The last thing you want to do is to sign something that offers a personal guarantee or even your home as security for your business debts.

Although limited companies and limited liability partnerships offer protection against business risks, they should be seen as a last resort, particularly where insurances are available to cover any such risks.  As businesses grow, their owners should ensure that their insurances continue to be suitable.

Finally, if buying property jointly with business partners, you should always look to set out your respective shares using a properly drafted declaration of trust.  

Stuart Hyden