Being personally liable means your money, house, assets and status as not-bankrupt are on the line.
That’s a situation to avoid. Think about how many restaurants and cafes go under in the early days. The owners can be left with the debts of the business.
Even if it’s just you on your own, we still recommend setting up as a company or a corporate trust.
Two proactive ways to avoid personal liability
- Set up the business as a corporation or a trust
- It’s the company (or the trustee) who’s operating the business and attracting liability.
- More on how to change to a corporation or a trust later. More on the differences between sole traders, trusts and companies.
- Don’t agree to be personally liable
- Directors are usually required to personally guarantee leases, loans and finance.
- Although that might stop you getting the lease or loan.
- There are plenty of other times when someone will ask for a personal guarantee from a director.
Two financial ways to avoid personal liability
- Don’t allow the company to trade whilst insolvent while you’re a director
- Keep up to date with PAYG and superannuation
- Directors have an obligation to ensure that their company pays PAYG and superannuation.
- The ATO can issue a director penalty notice, which makes the director personally liable for those outstanding amounts.
It’s not too late
Well, at least for some of these situations. It’s not difficult to change your legal structure from operating as a sole trader or partnership to a company or trust. There will be some fiddling with taxes. Things like corporate restructuring, rollover relief and small business tax concessions. Those can be readily managed.
Speak to us to get yourself protected.