Author Qiang Ding
Source: Tax Institute of Australia
Asset protection is often a key consideration for business owners. Whilst there is often focus on the asset protection of the personal assets of each investor, consideration is often not given to the various liability and asset protection features of the different business owning structures that are available.
In a Partnership, one partner could be liable for the totality of the debts and liabilities of the partnership if the partner did not take certain measures to reduce the potential exposure as a result of the joint and several liabilities.
Whilst a company or a unit trust structure seems not to have the same exposures as a partnership from a joint and several liability point of view, this is not to say that there is no exposure to liabilities. Requirement to provide personal guarantees is a good example. It is not uncommon for financial assistance to be provided by the underlying interest holders in order to assist the funding requirements of the business and the business owning structure. One type of financial assistance that may be required from shareholders or unit holders is personal guarantees in respect of the obligations of a company or unit trust. Although limited to the guarantee provided, the provision of such guarantees may effectively place a shareholder or unit holder in the same position as a partner in a partnership if they do not put certain steps in place for reducing the likelihood of this type of exposure.