Build the right business structures

Today, we're diving a bit into business structures and why they are so important to protect your wealth in most countries.

This year, I’ve evolved my own business structure including all my 3 companies. Why I did this and why you should do it too, you’ll find out in todays issue of Creative Prosperity. Let’s dive right into it!

The mistake most small business owners make

If you own your business directly as a person, you’re only half-protected. Your business protects you from business problems, but nothing protects your business from your personal problems. Someone sues you personally? They can take your entire business ownership.

The simple fix: Use a holding company

Think of it like keeping your valuables in a safe, not your pocket. You create two companies instead of one. The holding company owns your business LLC, and you own the holding company. This creates two walls of protection instead of one.

Your holding company owns the valuable stuff like equipment, property, and money. Your operating company does the actual risky work but owns almost nothing. If something goes wrong, people can only grab what’s in that one company, not everything you own.

How to set it up

First, create your holding company. Then create your operating company with the holding company as the owner, not you personally. Give each company its own bank account and keep the money completely separate. This part is critical. Mixing money between accounts destroys your protection.

Write simple agreements for how the companies work together. If your holding company owns equipment, write a lease saying the operating company pays rent for it. Keep records of everything.

Keep it working

The protection only works if you follow the rules. Keep separate bank accounts forever. Never pay personal bills from business accounts. Hold a quick annual meeting even if you’re alone and write down what you decided. File your yearly reports with the government. Keep your paperwork organized.

Most court cases that break through business protection happen because owners mixed their personal and business money. Don’t make this mistake.

When to do this

Start with a simple single LLC if you’re just beginning. Add the holding company structure when you have real assets to protect or you’re making more than sixty thousand dollars per year. This also how I started. First, I had my initial operative LLC, then I added the holding, and then another operative LLC.

Protection is one thing. But depending on your country, you get also a lot of tax leverage. For my case as an example, my operative LLCs can pay out tax-free dividends to the holding. This saves me very serious money (I’m in Switzerland).

Get help when needed

You can form a simple LLC yourself using online services. But get a business lawyer and accountant involved when you’re setting up multiple companies. It costs some money, but saves you much more in taxes and protection in return. They’ll make sure everything is set up correctly from the start. Something that is very valuable in the longterm.

Why this works everywhere

Different countries call them different things, but the basic idea works the same almost everywhere. Create legal separation between you and your business. Keep business and personal money completely separate. Follow the rules your country requires. Never mix funds.

The key is simple: one company protects another company better than one company protects a person. Build two walls, not one. Keep them separate, maintain them properly, and you’ll have real protection for what you’ve built.

I hope this information is valuable to you.

Disclaimer: This is not financial or legal advice, but just my own experience. Always check this with your accountant and trustee.