A Good Structure 10 Years Ago May Be a Bad One Today
One of the most important things to understand in business is where the liability sits.
Different structures carry different risk. What was a perfectly reasonable structure 10 years ago may now carry far more exposure than intended as the business grows.
If you trade as a sole trader, the liability is yours personally. In a partnership, each partner can be personally liable for partnership debts. If a trust trades through an individual trustee, that trustee is usually personally liable with a right of indemnity out of trust assets.
If a company trades in its own right, the company usually carries the liability. If a trust trades through a company as trustee, the company is usually the legal entity exposed.
But corporate structures do not make personal risk disappear. Personal liability can still arise through personal guarantees, DPNs, insolvent trading, overdrawn loan accounts, asset transfers and related party dealings.
Structure matters, but only if you understand where the liability sits now, not where it sat when the structure was first set up.
