Don’t let the buzzards do you over

I’ve had a few discussions in recent days with business owners concerned about their personal liability arising from work that they have done in the past.  The biggest worry is coming from architects who may have been involved in a project 10 years ago, which is now showing signs of not being completely water-tight.  It’s not necessarily that there was anything wrong with the work they did.  The owner may not have had any mainteance programme, the builder may have taken a cheaper option than was originally intended.  at the end of the day, it really doesn’t matter a whit.   In many cases, the architect may be the last man standing out of all the people who were involved in the project.  So, they’re the ones that are looking down the barrel of a potential claim of significant proportions!

There are a few things that can be done to help reduce the level of personal risk.

PI insurance is the first area of cover.  Most businesses will already have this, but unfortunately insurance companies are far more proactive in managing business risk  than most business owners.  So the things to watch out for are changes in what is covered (and I know that architects cannot claim under their PI insurance for watertight issues that are more than 5 years old), and the run-off cover.  Run-off cover for all business professionals will ensure that you continue to have PI cover, after you have retired, for work carried out during your working life.  If you can’t get cover for everything that you want, look around at other insurance providers and see what you can get from them.  And review your insurance cover on a  regular basis.

Business structure is the next best option.  Working under a limited liability company structure   is preferable to working as a sole trader.  If the company doesn’t have any assets, then it’s harder for any creditor to get any cash out of the company.  A shareholder would not have any liability for company debts, and a director is generally only personally liable if they have been negligent.  If nothing else, working under a company structure will place a hurdle in the path of any creditor, which has the benefit of slowing any actions down.

The third area is to not own anything and get to enjoy life as a pauper.  Major assets should be in the name of a trust.  The shares in the company you are operating under should be mostly owned by the trust (you may have to hold 1 share for tax purposes, but make sure a trust owns the balance).  Anything that is likely to increase in value – artworks etc, should certainly be owned by a trust.  Have the car registered in your partners name – on the assumption that they are not also running a business.  If they are, put the car in your kid’s names.  Cars and other similar assets are really easy for a creditor to get hold of, or put a charge over, if it is registered in your own name.

Take advantage of all of these options to help reduce your business risk – none of them are mutually exclusive, so use all of them so that you get to keep the assets that you’ve worked long and hard for.

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