Asset Protection: The best way to ensure your business assets are protected
Are you concerned that your company has substantial assets, and these may be exposed to the inevitable trials and tribulations of business?
Has your company been developing Intellectual Property and you want to protect this IP even further?
Sometimes it’s necessary for a bit of structuring magic to create a legal operating environment that allows your business to advance, whilst at the same time ensuring the golden egg stays safe.
What might this look like?
Instead of operating the business through one company, we incorporate another company to purchase the assets of the first company.
This creates a healthy and safe division of the two aspects of the business; the physical / intellectual assets required to carry out your service and the operating part of the business; human capital, service delivery etc.
The operating co is then able to go forward and continue trading, making sales, employing staff, while the newly incorporated company simply owns the assets. The valuable assets are then no longer exposed to the risks of the operating side of the business.
There are two steps to this process:
The assets are sold from the operating company to the asset company at current market value. The consideration is a loan from the operating company to the asset company. This loan is then forgiven.
A market based, commercial rate is then paid from the operating company to the asset company for the use of the assets on an on-going basis.
Asset protection, how it’s done in practice.
What’s the point of all this?
Say your operating company has a concentrated portfolio of clients. Each client accounts for 20% of your sales revenue, so you’ve got five clients.
Two of these clients are slow to pay over a few months. Your business is struggling for air.
One of your other clients here’s about your struggle.
They are not the most ethical and choose to also start paying you later.
Their nefarious intention is to force your company into liquidation so they can pick up your assets on the cheap through a liquidation fire sale.
Because, of course if they can cut you out, they can bring the service you provide in-house and increase their own margins.
But, if those assets are not in the entity that has signed the contract with them, they will be protected.
Who is this for?
This is for asset rich companies, such as;
Saas (Software as a service) with Intellectual property
Construction companies with significant plant & equipment
Hire Equipment / Leasing
This method of asset protection can be used for any business that has a particular asset that needs an additional layer of protection. It does not necessarily need to be an asset heavy business.
(P.S. the cover image for this article is that of a layer of dirt from Otago, just outside of Cromwell at a gold mining tourist attraction. If you look closely, you’ll see there are clearly defined layers of dirt. The gritty, pebble infused layer is where the gold is, protected by a layer of clay✌)