How to legally separate company assets from family:

At the heart of every business lies passion, innovation and tireless work. As entrepreneurs, you put not only time and money into your companies, but also a piece of yourself. Your business is often more than just a livelihood - it's a dream you've built. But what about your family? What about the assets you've acquired outside of your business? How do you effectively protect the house that is your children's home, the savings for their education, or even the cottage where you spend your free time, from the unpredictable risks associated with running a business?

Author of the article: ARROWS (JUDr. Jakub Dohnal, Ph.D., LL.M., office@arws.cz, +420 245 007 740)

This question is not just theoretical. It is a fundamental concern that affects many successful entrepreneurs in the Czech Republic. In a turbulent and ever-changing business environment, you can encounter a whole host of unexpected challenges: unpaid invoices from clients, protracted disputes with suppliers, hefty fines for regulatory breaches (for example, in the areas of GDPR, environmental, construction or occupational safety), or even court proceedings that can drag on for years and absorb huge amounts of time and money.

Without a clear and legally anchored separation of assets, these issues can easily spill over from your business to your personal life and threaten everything you have lovingly built for yourself and your family. The consequences can be devastating - from seizure of personal assets to deep psychological distress for the entire family.

This article aims to show you that there are effective and legal ways to protect this personal property. It's not about "hiding" assets or unfair practices, but strategic, proactive planning that minimizes risk and provides you and your family with peace of mind and security. It's about creating a solid wall between your business and your personal life.

At ARROWS, we deal with these sensitive situations every day with clients in a variety of industries. We understand your concerns and have deep experience in setting up comprehensive solutions that take into account the specifics of your business and your individual personal needs and goals. Let's take a look at three key paths to help you legally separate business assets from family in 2025.

Why is asset separation so crucial? Risks and penalties that are not talked about out loud.

You may be thinking, "It can't happen to me. My company is stable, and I'm careful." But experience inexorably shows us that caution is the mother of wisdom, and prevention is always cheaper than dealing with the consequences. All it takes is one unfortunate event, one major project that goes unexpectedly wrong, one unexpected audit, or one disloyal employee or partner, and your business can find itself in a threat you couldn't have imagined until then.

If you are currently running your business as a natural person (self-employed), you must be fully aware that you are liable for all debts and liabilities of your business with all your personal assets. This includes not only business equipment or bank accounts associated with the business, but also your family home, apartment, cottage, personal automobile, savings in your personal bank accounts, and even assets held in community property. Imagine the impact on your family. The situation where a bailiff knocks on the door of your house because of company debts is every business owner's nightmare. The psychological pressure, the uncertainty, the risk of losing the roof over your head and the serious disruption to family relationships - these are real threats that can become a reality if assets are not clearly separated.

But it's not just the threat of bankruptcy or insolvency. Businesses today are under enormous pressure from various regulations and authorities. You face hefty fines and penalties for non-compliance with a wide range of regulations - from data protection (GDPR), to complex environmental standards and building regulations, to complicated tax laws and workplace safety regulations.

Modern legislation is extremely complex and easy to get lost in. One wrongly issued invoice, a poorly worded contract with a supplier, inadequate record-keeping, or even the omission of a minor detail in compliance can lead to fines of tens of thousands, hundreds of thousands, or even millions of dollars. If you don't have these fines to pay out of company assets, authorities and creditors won't hesitate to reach into your personal assets.

ARROWS lawyers encounter these alarming situations all too often - unfortunately, clients come to us when the problem is already acute and the options for resolution are very limited. Our primary goal is to help you avoid these situations. Proactive and timely asset segregation is not a sign of lack of confidence in your own business, but rather a sign of a mature, responsible and strategic approach to risk management. It is an investment in your future financial security and your family's peace of mind. Remember, it is always easier, quicker and, above all, much cheaper to prevent problems than to deal with them in a complex and costly manner afterwards.

Route One: Limited Liability Company (Ltd.) or Joint Stock Company (Inc.) - Basic Pillar of Protection

The most basic, yet most effective, first step to protecting your personal assets is choosing the right legal form for your business. If you are still operating as a sole proprietorship, you should consider changing if protecting your family assets is a priority. As mentioned, a sole proprietorship is liable for all debts and liabilities with all of its assets without limitation.

The solution is to establish a limited liability company (s.r.o.) or a joint stock company (a.s.). Why are these forms so crucial? Because in these cases, the company is a separate legal entity from the person of its founders and directors. The company is liable for its obligations with its own assets. This means that you, as a shareholder (in an LLC) or as a shareholder (in an Inc.), are liable for the debts of the company only to the extent of its outstanding share capital. In practice, for most modern LLCs, this means that you are liable up to the maximum amount of your shareholding, which today is often a symbolic CZK 1. Your personal assets - family house, flat, cottage, car, private savings - remain protected from your company's creditors. Even if the company goes bust, its financial problems and debts will not be passed on to your family budget and will not endanger your personal assets.

Practical tip for 2025: Although the minimum share capital for LLCs is actually only CZK 1 (which has made it much easier and cheaper to set up a company), it is advisable in many cases to consider a higher deposit for the company's reliability and credibility. Especially when dealing with banks for loans, large business partners or investors, a higher share capital can signal financial stability and a greater commitment to the business, which can strengthen your position and credibility.

But what about the so-called "piercing of the corporate veil"? It is important to be aware that even an LLC or an Inc. is not a completely bulletproof shield in all circumstances. In Czech law, there is an institute of "piercing the corporate veil" (or also "liability for the debts of the company"). This means that in very specific and exceptional situations, in particular if a managing director or a shareholder of a company has acted in breach of the law, has deliberately harmed creditors, has clearly breached his duties of care as a good manager (for example, has misused the company's assets for his own benefit, has not kept proper accounts, or has failed to file a timely insolvency petition when he should have), the court may decide on his personal liability for the company's debts. While this is rare and only happens in serious cases, it is a risk that cannot be ignored.

At ARROWS, we will not only help you with the smooth and quick establishment of a limited liability company or a.s. and with all related administration, but above all we will provide you with valuable advice on how to set up internal processes and company rules to minimize the risk of breaking the corporate veil. We will explain your duties as directors and shareholders, and help you to carry them out properly so that you can have peace of mind and confidence that you are acting in accordance with the law.

Path Two: Trust Fund - Sophisticated Protection for Family Assets

The trust fund is still relatively little known in the Czech Republic, although it has existed for a few years, but it is an extremely powerful and flexible tool for asset protection and management. You can think of it as a separate, independent "box" or "property pile" into which you put your assets (real estate, money, securities, shares in companies, works of art, etc.).

Once the property is placed in a trust, it ceases to be your property and has no formal owner. Instead, it is administered by the trustee for a predefined purpose or for the benefit of designated persons (known as "beneficiaries").

It is this absence of a direct owner that is key to the protection of property. The assets in the trust become so-called autonomous assets, which are separate from the assets of the settlor (you) and the assets of the trustee. In the event of a foreclosure on your personal assets (or the assets of your company), creditors will not be able to access the assets in the trust. It is as if the property has "disappeared" from your estate, although it is still available to your family, just under different management and with a different legal status, protected from outside influences.

Similarly, the assets in the trust are protected in the event of complex life events such as divorce or even the unexpected death of the settlor, effectively avoiding complicated and lengthy inheritance proceedings.

Examples where a trust is the ideal choice for asset protection and management:

• Family property protection: house, apartment, cottage, land that serves as a home or recreational place for your family and you do not want them to be at risk from the risks of your business. The property is safe, even if your business faces problems.
• Ensuring future generations: you can set up the fund to finance your children's or grandchildren's education, provide housing for them, or perhaps support them to start living independently at a certain age or after meeting certain conditions (e.g. completing their studies). This ensures that the assets are used exactly as you wish.
• Preservation of family wealth and heritage: a trust fund allows the preservation of assets for future generations with precise rules for their use and management. This can significantly prevent disputes within the family over the inheritance and ensure its long-term stability.
• Support for charitable purposes: the creation of a fund for long-term support of charitable activities or specific organisations, with transparent management and oversight of the use of funds.
• Flexible succession planning: a trust can effectively replace a will and ensure a smooth and private transfer of assets without the need for lengthy and public probate proceedings. You can define exactly who will benefit from the trust assets and when.

Setting up a trust is a complex legal process that requires precise and detailed work and cannot be underestimated. It is essential that the trust's statutes, which are its basic governing document, are drafted correctly and with the utmost precision. It defines the purpose of the trust, the detailed rules for the management of the assets, and the rights and obligations of the trustee and the persons interested. Any error, ambiguity or omission in these statutes may have serious, often irreversible, legal and financial consequences in the future, which may jeopardise the entire structure of the trust and its purpose.

Equally important is the careful and considered selection of a trustee, who must be a trustworthy, competent and ideally independent person or entity.

At ARROWS, we specialize in trusts and have successfully completed dozens of projects for our clients. We will help you understand all the nuances of this instrument, design the optimal trust structure for your individual needs and ensure flawless drafting of the statute and all related documentation.

We are able to provide you not only with comprehensive legal advice, but also with the service of an external professional trustee if required. This guarantees you objective, professional and transparent administration of your assets without having to worry about administrative and legal details. With us, you can be sure that your assets are safe and managed with the utmost care and in accordance with your wishes.

Path Three: Holding Structure - For a comprehensive business empire and strategic protection

For larger and more complex businesses that include multiple and complementary activities, or those planning significant expansion and acquisitions, a holding structure represents the highest level of asset protection and strategic management. It is not just a simple separation of assets, but the creation of a sophisticated, robust system where one parent company (the holding company) owns shares in several subsidiaries.

Imagine the holding structure as a modern, well-fortified castle with several strongly fortified towers and separate buildings inside the walls. Each subsidiary is like a separate tower or building in which a specific business activity (e.g. manufacturing, distribution, development, real estate activities, IT services) takes place.

If one tower is attacked (i.e. there is a major problem in one subsidiary - for example, bankruptcy, a huge lawsuit, a large fine from the authorities, or a significant loss), this does not automatically weaken the entire castle and does not threaten the assets of the other towers or the main castle (parent company). Each subsidiary company is liable for its obligations only with its own assets. This "insurance" is crucial for the preservation of the entire business empire.

The benefits of a holding structure are considerable and go far beyond mere asset protection:

• Maximum risk reduction and problem isolation: separation of business risks between subsidiaries. A problem in one company (e.g., a lawsuit from a client, debts to suppliers) will not threaten the assets of the other companies in the holding company or the parent company.
• Tax and cash flow optimisation: holding structures often allow for efficient tax optimisation, for example when transferring profits between companies (e.g. in the form of dividends) or when selling shares of subsidiaries. They can be used for centralised financial management and efficient capital flow within the group.
• Flexibility in sales or acquisitions: you can easily sell just one subsidiary without disrupting the overall structure or operations of other parts of the business. This simplifies divestments or acquisitions.
• More transparent management and valuation: each business has its own company, which facilitates management, valuation and possible expansion into new market segments. This increases transparency for potential investors.
• Easier to raise capital: For investors and banks, a holding structure is often more attractive and transparent, which can make it easier to raise external capital for individual projects or for an entire holding.
• Intellectual property protection: often a separate company is created in the holding company, which owns all patents, trademarks and know-how and then licenses these to other subsidiaries. This protects valuable intellectual property even if the operating companies go bust.

A practical example that illustrates the power of holding: You own a group of companies. One firm develops and manufactures innovative IT solutions, another provides IT consulting and implementation, and a third owns the real estate that houses the two previous firms.

If a development firm faced a huge lawsuit for patent infringement or a key product failure, in a properly setup holding company, that lawsuit would not threaten the consulting firm's assets or real estate. Each entity would bear the risk for its own actions, but your overall business empire would be preserved.

Creating and managing a holding structure is a very complex matter that requires in-depth legal, tax and accounting knowledge. It is not a one-size-fits-all solution and must be carefully planned with the specifics of your business and your long-term goals in mind. You need to work out the details of the relationships between parent and subsidiaries, set up inter-company contractual relationships (e.g. management agreements, licensing agreements, loan agreements) and ensure compliance with all legal and tax regulations.

On the contrary, a poorly set-up holding company can bring more problems than benefits, including significant tax risks, high fines and complex legal disputes between the different parts of the holding company.

At ARROWS, we have extensive experience in designing, establishing and managing holding structures for our clients across a variety of industries. We will guide you through the entire process from the initial analysis of your current situation and the design of the most suitable holding company model, through the establishment of all necessary companies, to setting up all contractual documentation and dealing with all tax and legal aspects associated with its operation. We are your reliable partner for comprehensive protection of your business and family assets at the highest level, even in an international context if your business requires it.

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Conclusion: don't underestimate prevention - your peace of mind is priceless

Protecting your family assets from business risks is not just about legal paragraphs and complex structures. It's all about strategic thinking and a proactive approach that allows you to sleep easy, knowing you've done your best to keep yourself and your family safe. In today's dynamic, unpredictable and ever-tightening business environment, prevention is more valuable than subsequent, often painful and costly, problem-solving.

Remember: The impact of lawsuits, hefty fines and financial penalties can be devastating. They can destroy not only your business, but also your personal life and the life of your family. Prolonged legal battles drain not only your financial resources, but also your energy and mental well-being, and can have long-term negative effects on your health and family relationships. Taking a proactive approach to asset separation is the best investment you can make for your future.

Whether you are a budding entrepreneur considering your first business and want to build it on a solid foundation from the start, or an experienced owner of a thriving company that is growing and expanding, there is always room to strengthen your asset protection. Perhaps you already have an LLC but are considering a trust for your family real estate or to provide for your children. Or, your business is growing so quickly that it's time to consider creating a robust holding structure to provide you with maximum flexibility and protection.

Our experienced lawyers at ARROWS are ready to discuss your individual situation with you, analyze your specific needs and risks, and propose the most efficient and effective solution. We are here to provide you with a comprehensive legal service, from initial advice, to drafting all necessary documentation, to representing you before the authorities and courts. We will work with you to ensure that your assets are protected and that you can develop your business with peace of mind, knowing that your family is safe.

Don't put off protecting what is most important to you. Contact us today and let's work together to find a path to your restful sleep and the assurance that your family's assets are permanently safe. Your peace of mind and security are our number one priority.

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