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The best way to protect your personal assets is to structure your business!

Posted on: 10 May 2012

The easiest way to protect your personal finances from business creditors or from company-related litigation is to create your company as a separate legal entity.

Set up some type of entity that would be viewed as though it were a separate person in the eyes of the law so any liabilities, debts or financial repercussions that arise because of the business apply only to the business.
Next step – you have to make sure that you have separated yourself from your business.Many business owners own and operate their businesses as sole establishments. The only problem with this is that in the event the company is sued, the owner's individual assets (such as their cars or home) are fairly easy to attack or attach in a court of law.

Some options to consider as a way to limit the possibility that the owner's personal assets might be the target of a suit:

  • Limited Liability Company or LLC:is the most simple and flexible business entity choice(mainland/free zone), provides limited liability to the owners. The UAE Commercial Companies Law stipulates that a shareholder in a limited liability company is responsible only to the extent of his share/shares in the capital of the company.
  • An offshore company: is a legal entity that, in the most cases in the UAE, is exemptedfrom any form of tax, personal or corporatefor a period of 50 years with a further renewal for a similarperiod. JAFZA offshore company can own property, businesses, cash, securities and a host of other assets.
  • Holding structure: in offshore - to register the holding company and in Free Zones / mainland - to set up the operating companies. It is an asset protection planning strategy that helps to limit liability risks in your business structure. An ideal business structure consists of an operating entity that does not own any vulnerable assets and a holding entity that actually owns the business's assets. With this structure, a small business owner can eliminate liability for both business debts and personal debts.It's true that this multiple entity approach takes planning and expert advice.

Hopefully, your business won't be the target of a lawsuit or be at the mercy of lenders who say you owe them money. But it can happen because of any of your employee’s mistakes, and the best protection is to be prepared.