Where should I be holding my assets?

Where should I be holding my assets (1) (1)

Have you ever thought to yourself, should I be buying this asset under my name or the trust/company name? The answer to this question is complicated, and requires a few things to be considered prior to pulling the trigger.

It is a valid strategy to hold assets in an entity which is separate to your business. You can then lease the asset to the business for use in day to day operations, whilst having them protected in a separate entity. However, with this strategy it requires you to have two different entities, which means more compliance at the end of the financial year.

 

Land & Buildings

The perfect example is to acquire land and buildings in an entity which is not the trading entity. This strategy takes advantage of the ‘corporate veil’, which means that (in most cases) assets held outside of the business are not exposed to any trading company debts. This logic makes sense when taking considering the additional complexity/costs of having another entity, as your top priority is asset protection.

 

Plant & Equipment

When considering which entity to purchase your plant and equipment, the value of the asset(s) in question is to be considered. Again, you are trying to utilise the ‘corporate veil’. If you are talking small amounts for tools or other miscellaneous items, the additional costs needed would make this process ineffective.  However, if you have purchased a large amount of equipment(particularly if it’s not financed), it would make sense to purchase this in another entity so that it could never be at risk if business took a turn for the worst.

 

Is it easy to transfer assets from one entity to another?

When transferring assets from one entity to another, the following must be considered:

  • Stamp duty on transfers
  • Administrative requirements on a separate entity (including invoicing for rent and managing expenses in the new entity)
  • Additional bookkeeping and accounting fees
  • Establishing the new asset holding entity
  • Updating loans and insurance

 

How Should I Purchase Assets?

This is another point to strongly consider when acquiring assets, things like cashflow and credit eligibility are crucial to think about. Financing the asset leads to maintaining cash reserves, which can be used elsewhere to grow parts other parts of the business. However you must consider the total cost over time, paying cash will lead to bigger savings than a lease, ultimately freeing up cash in the future.

These questions need to be asked when determining the payment method:

  • How long will you need the asset for? Is it for a short-term project?
  • Will this new asset generate enough revenue to justify the expenditure?
  • Will the assets technology become obsolete quickly?
  • Is this purchase a top priority of the business right now?
  • What will be the lifetime costs of this asset? i.e. servicing, maintenance, replacing components.

 

In summary, valuable assets should always be separated from a trading business. In practice, things like risk of the business, debt against the assets and the cost/benefit of the extra complexity all come into play when deciding if it is economically viable to protect the assets in a separate entity,

If you would like to run your decision by Link Advisors, give us a call for an obligation-free chat.