Set Up The Holding Company in Advance
Most professionals and business people can easily and unexpectedly find themselves embroiled in a financial crisis that could cost most of their assets. Doctors, lawyers and other professionals sued for malpractice or misconduct, business owners who must fight liability suits, anyone dealing with whopping medical bills to cover a long-term illness, people who can't get enough insurance or can't afford to pay for the coverage they need.
In this escalating crisis the best self-defense is to get assets out of your name far in advance of any trouble with creditors. Although judges don't look kindly on people who transfer their assets in order to defraud creditors. The longer the time between a transfer in court judgment, the less likely the transfer will be deemed fraudulent by the ones you're involved with in a suit.
Personal Savings
This is probably one of the better ways to fund your business start-up costs. If you have a personal savings account large enough to cover your expenses, this route is ideal. If you use your personal savings, you won't have to deal with owing lenders, either personal or professional, any money. The downside is, if your business start-up takes a huge chunk of your savings, it could leave you high-and-dry in personal emergencies where you might need that money.
Transfer Ownership & Maintain Control
Setting up a family personal holding company lets you keep control of your assets while transferring ownership of most of them out of your name. This is how it works, you establish a corporation giving yourself a relative majority of the stock and dividing the rest among the family members. As example, use your 100 shares 30 for you, 25 for your spouse and 15 shares for each of your three children.
You then give your assets to the corporation as a gift. Managing them yourself. As chairman of the board. If you're sued, creditors can only get a hold of your 30 shares a minority interest in a private company, which isn't very useful. In many cases, creditors will be willing to settle for much less than originally demanded that fits in a more liquid form.
Establish a Family Trust
Spendthrift trust, are an effective way to protect inheritances and other windfalls from ending up in your creditors hands. This is how it works, the trust is set up with you as the beneficiary and another party, could be your spouse, a lawyer, as long as it is one trusted person as your trustee. Worked into the trust states that the assets can't be used to pay creditors. People who intend to or will give you money for example;(your parents) would give it to the trust instead. Spendthrift trust, are an effective way to protect inheritances and other windfalls from ending up in your creditors hands. This is how it works, the trust is set up with you as the beneficiary and another party, could be your spouse, a lawyer, as long as it is one trusted person as your trustee. Worked into the trust states that the assets can't be used to pay creditors. People who intend to or will give you money for example;(your parents) would give it to the trust instead.
Tap Into Your Home Equity
If you own a home, and have a strong credit rating, you might consider tapping into your home equity. This could help you cover your start-up costs, however, it increases the amount you owe on your home.
Sell Some Stuff
If you've got things around your house that you know you could live without, consider selling them to fund your start-up cost. Try selling your things in a yard sale, on Craigslist, eBay, or your local newspaper classifieds. If you put forth the effort, you'll probably end up with a decent chunk of cash. The benefit to this method is that you won't owe anyone anything if your business doesn't do as well as you'd have hoped.
Take Out a Loan
If you're unable to fund the start-up yourself, and can't or don't want to ask family members and friends for help, you might consider taking out a business loan. If you're interested in a bank loan, you need to pay a visit to your local bank and schedule an appointment to speak with someone in more detail about the services and loans provided. If you're not looking for as high of an amount, you might consider using a website such as Prosper, to obtain a smaller, private loan.
Parting Thoughts
Equitable answers to these questions, and others, are rarely straightforward and seldom easy. To act in the best interests of the business, the shareholders, and clients, the prudent course of action is for partners to seek expert legal guidance and assistance in ending a partnership agreement.
Frequently Asked Questions
A family holding company is used to manage family investments in other companies, real estate, equities and other investments. The holding company is generally utilized as part of a estate plan.
The largest family owned company is difficult to define, and often changes, but contenders include Walmart, Volkswagen, Berkshire Hathaway, Exor and more.
A holding company can be a family office, for those with significant assets this is generally done via a Private Family Trust company meant to manage wealth across generations.
A family trust can be a holding company, but generally it's advisable for the holding company to be held by a family trust. The relative merits of each should be discussed with a business and trust attorney.
