Many people incorrectly believe that having assets in a company will protect those assets from being claimed by creditors or a trustee in bankruptcy.

In most cases, a company is structured primarily for tax reasons and little consideration is given to proper asset protection. When establishing a company very few people give proper consideration to the ramifications of a director or shareholder becoming bankrupt or insolvent.

On bankruptcy, a trustee in bankruptcy effectively takes over the control of all assets of the bankrupt. In the case of company this could mean the trustee in bankruptcy becomes a majority shareholder in the company. In such a case this would enable the trustee in bankruptcy to effectively take control of a company enabling it to sell company assets and distribute the proceeds to himself.

Company ownership should be structured to provide proper asset protection. Default mechanisms need to be in place to deal with the possibility of bankruptcy and careful consideration needs to be given to who should be shareholders and the directors.

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