• Establishing and running a business can carry a certain degree of personal financial risk. When making choices about how to set up and operate your business you need to be comfortable with the degree of risk you are taking.
• When things go wrong in a business your personal and family assets can be at risk as well as your business assets. Knowing how to protect yourself is essential.
• Some business structures carry more personal risk than others. The level of risk also depends on the type of business you operate.

A) Sole Trader or Partnership

• Operating as a sole trader or partnership can often carry a high degree of personal risk. These business structures are not considered legally separate from you as an individual. If the business finds itself in debt or defending any litigation your personal or family assets may be used to pay the debts of the business.

B) Companies

• This is different with a company. A company is a separate legal entity. A company can hold assets and have debts itself. Creditors of the business will generally be repaid out of the company assets only. It is rare that the personal assets of a company director would also be at risk.
• There are exceptions to this rule. If you are the director of a company and have breached your duty towards shareholders or other relevant parties your personal assets could be at risk.
• Generally operating your business through a company provides a greater degree of personal protection than a sole trader or partnership structure.

C) Trusts

• A trust business structure provides a similar level of personal asset protection for beneficiaries. This is particularly relevant for small family businesses or for family investment trusts where profits are shared between family members who otherwise have no direct involvement in the running of the business.
• Trust assets are not technically owned by the trustee or the beneficiaries. If a claim is made against a person in the family group (a beneficiary) the trust assets will generally not form part of the asset pool available for debt recovery. This is because trust assets are owned by the trust not by the debtor.
• However a trustee is more likely to be held personally liable for the debts and liabilities of the trust if they fail to meet their trustee obligations or simply fail to adequately manage the ongoing affairs of the trust.