For many business owners, being stuck in a bad corporate structure can feel like being stuck in a bad marriage:
- It seemed like a good idea 10 years ago.
- The things that once attracted you no longer hold much appeal.
- It can be very expensive to get yourself out of it!
Unfortunately, in the Private Advisory team at Mills Oakley we regularly meet business owners who are co-habiting with bad corporate structures.
Here are some of the common ones that we see out there:
- Holding shares in your company in your own name, and not through a family trust. This structure is bad for asset protection, because if you are sued personally (say as a director) then your valuable business equity will be exposed. Plus, you will have no scope to distribute income and capital gains tax effectively to different beneficiaries. And finally, because shares held in your personal name are estate assets, this structure can also increase the chances of a Will dispute should you die.
- Holding valuable assets in the trading entity. For example, many business owners hold valuable real property or intellectual property assets in the trading entity and therefore expose those assets to business risk.
- Overly complex or engineered structures with myriad trusts and other entities. These structures can be difficult to understand and costly to administer. And, buyers don’t like them.
- Running your operating business through a family trust. This is not a divisible structure, so you can’t (for example) sell down equity to investors, senior management, or family members. And of course, you can’t sell a family trust to a third party in the same way that you might sell a company.
If you are currently living with a bad structure, depending on your circumstances there may be things that you can do. Particularly if you are able to restructure using the small business tax concessions. The Mills Oakley private advisory team is available to discuss!