Throw Your Assets Over the Fence
Drawing a line in the sand between your personal assets and your business assets is something people commonly forget to do.
Your company has its own life and should be kept separate from your personal life. Paying for your house through the company is definitely a no-no — if you're paying off your home from company funds, it can be deemed to be an asset of the company. Your home needs to be paid for from your personal drawings or wages, not company cash.
There's a fine line, though: if you've used your home as security for a company loan, capital raise, or overdraft, the company needs to repay that loan — not you personally.
Moving assets from a sole trader or partnership into a company
This works the same way if you previously traded as a sole trader or a partnership. The company needs to properly buy the assets from you, either by cash payment at fair market value, or via a loan agreement which gives you security over those assets until they're paid in full. The loan for the purchase of the assets can be repaid over a reasonable period that works within the company's cash flow. There's a real need for a proper sale agreement, so there's no ambiguity about who owns what.
Securing the equity in your home — simply the difference between what you owe the bank and what the house is worth — is a very important part of asset protection.
An alternative: licence or rental instead of sale
Assets owned by a sole trader or partnership don't always need to be sold to the company. They can instead be utilised under a licence agreement or rental agreement, which means you still own the assets and personally receive an income from them. This can assist with passive income in your personal life.
These situations are different from person to person, and it's something you should discuss with your accountant or professional advisor.
Want a review of how your own assets are currently held? See our asset protection reviews or get in touch.