Asset Protection for Business Owners and Directors in NSW

Running a business means taking risks, and some of those risks can reach your personal assets. This article outlines common ways business owners and directors in NSW can limit that exposure. It is general information only.

Choose the right structure

A company is a separate legal entity, so in general its debts are the company's, not yours. But that protection is not absolute. Sole traders and ordinary partners are personally liable for business debts. Many owners therefore operate through a company or a trust-and-company structure, and keep valuable assets in a separate entity from the one that carries the trading risk.

Watch personal guarantees

Banks, landlords and suppliers often ask directors to guarantee the company's obligations. A personal guarantee can bring your home and savings back into play if the company cannot pay. Before signing, read what you are guaranteeing, whether the amount or period is limited, and whether you can negotiate a cap or a shorter term.

Know your director duties

• Insolvent trading: under section 588G of the Corporations Act 2001 (Cth), a director who lets a company incur debts while it is insolvent, or where there are reasonable grounds to suspect insolvency, can be personally liable, subject to defences such as the safe harbour.
• Tax and superannuation: the director penalty regime can make directors personally liable for unpaid PAYG withholding, GST and superannuation guarantee amounts, and a director penalty notice can carry short deadlines.
• Records and reporting: good financial records and early advice when cash flow tightens are among the best protections a director has.

Insurance and contracts

Appropriate insurance, such as public liability, professional indemnity and directors' and officers' cover, can limit the financial impact of a claim. Well-drafted contracts, including limits on liability, also help.

Frequently asked questions

Does a company completely protect my personal assets?

No. Personal guarantees, insolvent trading, tax-related director liabilities and the way you have dealt with company money can all put your personal assets at risk.

When should I get advice?

Ideally before you start trading, before you sign a major guarantee or lease, and when the business first shows signs of financial pressure.

Can I move assets out of my name once the business is struggling?

This is risky. Transfers made when a business is in difficulty can be challenged and set aside. Speak to a lawyer first.