Business Risk Strategy

The principals behind any business will invariably encounter requests or demands that have the effect of making them personally liable. Common examples are personal guarantees of directors for bank finance involving a new company, and similar requests by Landlords in respect of company's leased business property.
 
Forming a company though which you do business provides gives the protection of a limited liability i.e. all debts rest with the company and not the directors or shareholders. Creditors cannot look beyond the Company to recover debts due by the Company to them. When starting a business people should consider whether personal liability is an issue for them. There are other consideration when doing business through a company e.g the need for two directors, the taxation of company profits at Ireland's low corporate tax rate of 12.5% but the further taxation on director's salaries when drawing from the company, etc. If you do not incorporate, every debt of the company is a personal liability to you as you operate the business personally, even where you operate under a business trade name.
 
Even with a company structure you will in certain cases as we have already identified, bank finance and commercial leasing. In the latter case this usually means that the Directors of the company are personally liable to the Landlord for the rent, rates, insurances and all other outgoings that are payable or by the company to the Landlord and other bodies under any Lease or Licence.
 
Even in the case of conducting business through a company, personal exposure to some degree is something people should expect as part of any new venture, certainly where there is no trading history or company value to consider. If people are subject to personal guarantees then planning an exit strategy is important to minimise your personal risk. As part of negotiations discussions should be had with the Bank or Landlords as the case may be as to the conditions on which the guarantees are to be released. This is usually based on achieving a certain trading position after an agreed period of time (e.g. two to three years).
 
In the context of leasing business property a second option can be, having agreed the date by which the guarantee will expire (usually subject to compliance with the therms of the lease), people can further limit their exposure by capping the amount that is covered by the guarantee (e.g. capped at the value of three to six months rent). These actions will enable business people to quantify the personal risk in real value terms and reduce the exposure overall.
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