can an accountant set up a trust?

I'd say slim chance. The business is cabinet making. Nothing really insurance can't cover ( i think)

 

It is the contractual disputes that result in litigation mainly.

 

Sorry to butt in here Hodge but I have appt. tomorrow for same question. Is there any way to protect personal 50/50 assets . After 20 odd years the company we contract transport delivery for is moving towards groups of 4 so to distance themselves from contractors. Unfortunately hubby and I are the probably the smartest of our group of drivers and that isn't saying much!! We are having to consider being the prime contractor with 3 other owner drivers as our subbies. I am going tomorrow to find out a lot more info before going down this path and tendering for contract again. We make good money at this job so hope to continue, but not at the risk of losing everything.

 

At the moment we have numerous insurances for all vehicles, liability, transit all with minimum 20 million cover.each policy.

 

SueA - hope you have an appointment with your lawyer.

What is the current structure?

A company protects because of its limited liability nature. It is the company that contracts with customers and the company that would be sued if there is a breach of contract. Directors of the company are generally not able to be sued in relation to the company, but there are exceptions. Shareholders on the other hand are completely safe from being sued if the company goes down. personal guarantees are different of course

You also have to look at the other side if a director is sued personally for something else - e.g. defamation, the company is not effected. If a shareholder is sued for something the company is unaffected. But if a shareholder ends up bankrupt the creditors can get hold of the shares and possibly the company and its assets.

 

What about if you do a large job and don't get paid.

You then sue and lose and the otherside counterclaims and wins.

I have a situation where a builder sued (through someone else) for $200k in unpaid bill (cabinetry was the items in dispute - very big house with walk in robes etc). Builder lost (poor legal representation IMHO), client counter sued and won over $200k in their counterclaim and was also awarded more than $400,000 in legal costs against them. If that was in personal name then bye bye everything.

What about if you do a large job, builder doesn't pay you and goes under? If you can't pay suppliers and in your personal name then it is your assets on the line.

What about if you have someone get injured and your insurance company determines that you were negligent/ acted outside of your expertise/ didn't disclose something to them at the time etc. Insurance won't pay.

Accountant's telling people who to be the appointor or trustee is legal advice, their insurance will not cover it as legal advice is excluded.

 

Great points RPI.

Many people going bankrupt because of others going down - it is like a domino effect.

 

@RPI great post and example. If i understand your post correctly you're saying trading as a sole trader is a major risk. I've been trading as a sole trader for 10 years. When i first started i had nothing so i didn't care as much. Different story now. It's one the reason every IP purchase is split 50 / 50 with the wife so if i get sued my wife holds the other half.

 

Thinking out loud here, if i do decide to change from sole trader to Company would that mean i need to reapply for trading accounts with all my suppliers?

 

Yes - you are not the same person. The company is a separate legal entity. But this must be common for trading accounts so it may not be a big deal.

 

Thanks for reply Terry. We are a family partnership and have been for over 20 years, we started with a lease on a small truck and went from there. I have my meeting with Darryl from satellite 360 which have their own lawyers, financial advisors etc. so hoping for some sound advice.

 

Darryl the solicitor should be able to tell you the dangers of a partnership. A partnership of natural persons is the most dangerous structure known to man (and woman). If you are in the trucking business that could be even more of a danger than normal.

What you should talk about is starting to operate via a trading company to limit liability.
the structure of this company
who should be director
who should be shareholder
should a discretionary trust own the shares
how to limit exposure to personal guarantees
Have the assets owned by a separate entity - a discretionary trust or company.
Transferring the existing business to those new entities
Transfer terms - probably full market value
claw back issues under the bankrutpcy act and the conveyancing act for the state you are in and the assets are in
Stamp duty implications
CGT strategies
Debt recycling strategies
Funding strategies
How to employ staff
Any intellectual property?
- how to hold this
-licencing
how to operate the trading entity so as to reduce risk
etc
etc

This could be a golden opportunity to improve your set up and to save some tax and to reduce non deductible debt all at the same time.

 

Sheeeet!!! Just picked myself off the floor. I must have been wagging the day off school when they discussed the above. I knew from some of your other posts I read that we are set up badly in every way. Don't have any non deductible debt. Will read and reread above so I have a bit of an idea. Add to this we are also into mass and fatigue management. Thank you again for all your help. If it turns to crap will sell everything and live on my bush block!!

 

@Terry_w Sometime ago I thought I read somewhere about a trucking business saying it was better to have the "equipment" being the trucks in a separate company to your business ? I thought it said that if the company got sued they couldnt take the "equipment" ??

 

Yes definitely a good asset protection strategy.

 

Had initial meeting to see what is possible if we have to become prime contractor. We plan to be out of this business in 5 years. Clawback was also mentioned, 2 yrs I think. Rough outline will to become a company with hubby as sole director, shareholders sort out later. Separate contracts for each subbie. Hubby to gift his PPOR half to me. Change other homes to tenants in common , with loan amounts more to his side, possibly look at second mortgages on IP.S,
As you said Terry, partners is a terrible set up, with no protection for anything, just have to maintain high insurance coverage. Came home to confidentiality agreement email so will know more soon.

 

Thanks for reporting back Sue.

Clawback is longer than 2 years for gifts to related parties. It is 5 years for undervalued transactions s120 Bankruptcy Act. But if the purpose of the transfer is to defeat creditors (asset protection!) it would be indefinite s121 Bankruptcy act and the conveyancing act for the state the property is in (e.g. s37A Conveyancing Act NSW).

Changing from JT to TIC is good for asset protection. Changing PPOR to your name will mean stamp duty.

A company is good, one director is good. Shareholder should possibly be a trustee of a discretionary trust.