• Proper Company Asset Structuring

Proper Company Asset Structuring

What is Proper Asset Structuring for a Company’s Business?

In Australia, it seems that legal claims are on the rise. Even though Google is a great tool to give a business visibility both on the internet and in the local community, anyone can leave an adverse review of your business, even if you have done everything in your power to make that particular customer happy.

Have you properly protected your company’s assets to ensure that they are safeguarded if an unexpected event occurs?

Do you even know what a proper business structure may look like for your particular business type?

Protecting Your Company’s Assets

If something adverse happens to your company’s business, even if it is not your fault, you need to ensure that the assets the company uses on a daily basis are properly protected without the need to repurchase them. This is where proper business structuring proves its worth—think of it like an insurance policy.

Proper business structuring involves:

  • Establishing a separate asset holding entity
  • Leasing assets to the trading entity
  • Registering security interests on the Personal Property Security Register (PPSR)
  • Maintaining proper agreements between the entities
  • Company Asset Structuring, Liquidation, Restructure

It’s Not Just About the Legal Entity

Many people believe that it is the legal entity (a trust or company structure) that will save their assets. However, it is not the legal entity itself that protects the assets, but rather how the ownership of the company’s assets is structured.

To properly secure assets, you should:

  • Lease the assets to a trading entity
  • Register the lease on the Personal Property Security Register (PPSR)
  • Maintain proper agreements between the two entities
  • Ensure that there are payments of real money between the entities

Planning for the Future

With less than 6% of Australian businesses sold at the end of their business lifecycle, it means that the remaining businesses either end up in some sort of insolvency or deregistered with the Australian Securities and Investments Commission.

If you focus on the end of the business lifecycle and have a little planning for the future, you could ensure that if you are part of the 94%, you have protected the assets of the Company properly.

The Importance of Proper Asset Protection

I know what you are going to say, “I’ll be one of the 6% that the business is sold.” However, the fact remains that everyone thinks they are going to be in the 6%, but when the end comes, they either are unable to sell the Company or have too many debts to be able to sell.

If you are one of the 6%, congratulations, as you have achieved a feat that not many Australians are able to accomplish.

But what happens if you are not one of the 6%? In that case, proper asset protection strategies for your company’s assets become crucial.

Protect Your Company’s Assets Today

Don’t wait until it’s too late to protect your company’s valuable assets.

Book an appointment with LemonAide today to see how we can help you legally and ethically safeguard your assets before an adverse event occurs.

Click on the “Book an Appointment” button above to schedule a consultation and get answers to all your questions.

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How Does Corporate Asset Structuring Work?

Setting Up the Structure

  • Two Pty Ltd companies are set up: one as the trading entity and the other as the asset holding entity.
  • The asset holding entity does not trade directly with the public or provide guarantees for the trading entity’s debts.

Funding the Asset Purchases

  • The asset holding entity purchases the assets needed for the trading entity to conduct its business.
  • Funds for the asset purchases come from the same sources as before, either personal funds or a finance company.
  • If personal funds are loaned to the asset holding company, take a security interest over the asset holding entity and register it on the PPSR.

Leasing Arrangements

  • The asset holding entity enters into a commercial lease agreement with the trading entity for the use of the assets.
  • The agreement is registered on the PPSR as a security interest.
  • The trading entity makes payments to the asset holding entity according to the agreement each month.

Handling Non-Payment

  • The asset holding entity should be treated as a separate entity, not a “friendly supplier.”
  • If the trading entity does not pay on time, the asset holding entity should issue demands for payment.
  • If the trading entity fails, it can return the assets to the asset holding entity, which should be stored separately from the trading entity’s premises.

Navigating Pitfalls

There are many potential pitfalls in setting up an asset structuring transaction, such as:

  • Failing to maintain proper agreements between the entities
  • Not registering security interests on the PPSR correctly
  • Commingling funds between the trading and asset holding entities

LemonAide can assist directors and accountants in navigating these pitfalls and ensuring that the asset structuring is set up correctly.

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Frequently Asked Questions

Asset structuring involves organizing the ownership and control of a company’s assets to protect them from legal claims and financial risks.

Proper asset structuring safeguards your business assets from unexpected events, legal claims, and financial instability, ensuring continuity and protection.

It protects assets by separating them into a holding entity, leasing them to the trading entity, and registering these arrangements on the PPSR to ensure legal security.

The PPSR records security interests in personal property, providing legal recognition and protection for leased or financed assets.

Typically, two Pty Ltd companies are set up: one as the trading entity and the other as the asset holding entity.

The asset holding entity purchases the assets, funded by personal funds or finance companies, and leases them to the trading entity under a registered agreement.

If the trading entity fails to pay, the asset holding entity can reclaim the assets, ensuring they are not lost or tied up in insolvency proceedings.

Yes, it helps by ensuring assets are held separately and securely, protecting them from being claimed by creditors during insolvency.

LemonAide provides guidance and expertise to ensure proper setup and maintenance of asset structuring, helping businesses protect their valuable assets effectively.

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