Protecting a Family from the Business Structure

Protecting a Family from the Structure Liability Risks of a Business

As a business owner, there are plenty of things you need to manage, and two of the most important of these are liabilities and the risk to your personal assets.


Protect your Family from your business

Business owners are liable for the actions of their business – how far that liability extends is different for each business structure.

This is important to understand because your level of personal liability determines the potential risk to your personal assets.


Understand different levels of personal liability come with different business structures

Different business structures all have different levels of owners risk, so understanding your particular liability and how that affects your family, is the first rule of a family first small business.

Sole Traders are seen as the-one-and-the-same entity with no separation between business and personal responsibility.

» As a result, Sole Traders carry unlimited personal liability.

This means if you are sued, your personal liability is unlimited. This puts at risk all your personal assets, including assets jointly owned with another person, such as a house.

Partnerships usually have unlimited personal liability, and joint and several unlimited liability for all actions (and inactions) of all the business Partners too.

» As a result Partnerships that do not have a documented partnership agreement in place are doubly high risk with all business and personal assets of every Partner at risk – along with joint liability for all criminal, fraudulent and negligent actions too.

Company structures are separate legal entities, where directors and shareholders are generally protected from being personally liable for the company's debts. As a result, there is often said to be a ‘firewall’ between the personal assets and liability of the directors, and the company’s actions.

»  This protection lifts as soon as Directors give a personal guarantee in favour of a company creditor and become personally liable.

» Additionally, insolvent trading, Directors Penalty Notices (DPN's) and outstanding tax obligations are considered personal liabilities regardless.


Protect your Assets from your business (including jointly owned assets)

A family-run business has unique risks which is dangerous when the majority of a family’s wealth and assets are tied up in that business. Knowing your own level of risk exposure is key to better managing them.

Watch a quick video here about how to categorise the risks you face.


Understand which mixed assets are in use and the effect upon your business and family of losing them

Many families rely on a family business as their main source of income. When this is the case, and the family business endures a difficult cash-flow month, family income decreases. Many may also share business assets as mixed-use assets (like a car to pick the kids up from school, mobile phones, and related shared-use items.) It’s fair to say family and business life are now more intertwined than ever and any core risks to a business can be significant risks to the family of the business owner too.

Develop a way of Family First Business Thinking, to protect your family from the structural risks of your particular type of business.

Ongoing fixed Business Expenses Insurance OR Key Person Replacement

Business Debt and Ownership Insurance

Chat with a
Specialist Business Risk Advisor

If you'd like to talk through your Small Business Protection options, we'd love to help you out with that.

Small business owner

Sole Traders, Tradies, and Solopreneurs

There are an increasing number of people who choose to start a business with no intention of ever adding staff — the Sole Trader Small Business Owner — and this business structure is likely to only increase in popularity.

For this reason, a new generation of freelance workers and sole proprietors has emerged.

  • With professionals content to run a one-person shop with no intention of bringing another person on, the distinction between a solopreneur and an entrepreneur can be difficult to see, especially since so many entrepreneurs start out working alone.
  • But the mindsets of a solopreneur and entrepreneur are subtly different and noting those differences can help professionals determine the long-term direction they’ll take with their businesses.

There comes a transition point in all small business owners' professional life where we decide to treat our business as a business, and no longer as a hobby that also pays us.

Whether you own a print shop or plan to start a shop fit-out company, your business is the first thing on your mind in the morning and the last thing you’re thinking about before going to sleep.

The change in mindset

To do this requires a deliberate change in attitudes about being a responsible adult with a level of self-drive, autonomy, and responsibility our employed counterparts don't necessarily share (or even understand). This can initially be an isolating feeling for many small business owners but also a coming-of-age awareness, that 'if it's going to happen, it's up to me to make it happen'.

'...if it's going to happen, it's up to me to make it happen...'Every small business owner

Along with this newfound vision for a brighter future comes the practical decisions about the costs, safeguards, and amount of focus needed to make it.  It also brings with it practical questions about how to best protect and provide as a small business owner.

Advantages and Disadvantages of a Sole Trader business structure

Each business structure has unique benefits and risks to be understood by its owner.


  1. The structure is simpler to set up and has fewer government reporting requirements.
  2. You have full control of your assets and business decisions.
  3. You can use your personal tax file number (TFN) to lodge returns.
  4. You don't require a separate bank account (although is very highly recommended to make tracking personal and business expenses separate).
  5. You need to keep financial records for 5 years.
  6. You are not considered an employee of your own business and therefore don't pay payroll tax, compulsory superannuation, or Workers' Compensation premiums on the income you draw from the business.


  1. A Sole Trader is solely responsible for the liabilities of their business, which means all your personal assets are at risk if something goes wrong. Because the liability is unlimited, it can include all your personal assets including any assets jointly owned with another person, such as your family home.
  2. Sole Traders declare their business income (or loss) as part of their personal income tax return and are taxed at the same rate as an individual. Over time, this personal tax rate may become greater than the company tax rate.
  3. There is little opportunity for tax planning as you can't split business profits or losses with family members and you are personally liable to pay tax on the income from the business.
  4. You're also not covered by Workers' Compensation should you injure yourself at work. This may result in a loss of income if you get sick or injured and cannot work, and you may still be required to pay ongoing expenses for your business, such as loan repayments, and fixed business overhead costs.
  5. Many Accountants will refuse to work with a Sole Trader due to the significant personal liabilities involved and the risk of 'losing it all'.
  6. Many larger businesses with integrated supply chains may see Sole Traders as inherently high risk, due to the personal liability embedded in this simple type of business structure.

Employing staff: You can employ people to help run your business under the sole trader business structure. If you do decide to take on any employees, there are obligations you must comply with such as Workers' Compensation insurance and superannuation contributions (SG).

Problems common to all Sole Traders

  • They usually focus on the cost and not the value.
  • They usually ignore the risk of unlimited personal liability until it's too late.
  • They usually don't have a plan for their personal Superannuation and therefore risk their ability to eventually retire.

The Future of Business is Diverse

Female entrepreneurship in Australia
Around 12% of all employed women in Australia are self-employed. Over the past ten years, female self-employment has been steadily climbing and in 2016, almost 590,000 women in Australia reported they were self-employed. Female entrepreneurship encourages further employment with one in three self-employed women going on to employ other people.
Source: Census 2016, Census Longitudinal (2016)

Flexible work and its importance to Australian women
Almost half of the Australian women in senior positions want the opportunity to have flexible work arrangements so they can stay engaged in the workforce while caring for their children or elderly relatives. Mothers make up 92% of self-employed women, and 80% have dependent children.

How we can help

Sole Traders and Solopreneurs have unlimited personal liability because of their choice of business structure, which needs to be managed to protect them and their families, from the business risks.

Contact us for a confidential chat about your needs.

Related: Business types we work with

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