As the family business grows, it is wise to try to isolate assets from the reach of future creditors. The key is to ensure that these protective moves are implemented when major assets are acquired or developed so future creditors cannot later claim that this was just an attempt to defeat their claims.
The use of a separate operating company (“opco”) and a holding company (“holdco”) which is owned by the family group is the most usual form of “vertical” segregation. Holdco will contain assets that are not required for the daily operation of the business such as:
– Investments not required for the day-to-day operation of the business;
– Real estate out of which opco operates the business.
The shares of opco are normally owned by holdco and family members own the shares of holdco. This type of structure, when implemented from the outset and not with an intent to hinder or defeat existing creditors, could safeguard the assets in holdco.
Best of all, these protective measures can be accomplished at a relatively modest cost.
The foregoing provides only an overview and does not constitute legal advice. You are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained in the context of your own particular circumstances.