How asset-only entities work
The purpose of setting up an asset-only entity is to separate a company’s assets from the trading business. In doing so, you aim to ringfence your gear, protecting it from unsecured creditors if the trading company runs into problems which may otherwise see the assets sold up if the trading company was to fail.
How it works is the asset-only entity owns all the gear and owes all the money on the equipment. It then leases the assets to the trading business, using this income to pay down the loans. The trading business get on with the work it is contracted to do, pays the wages and shouts the beers.
To ensure that an asset-only entity works as intended, it is imperative that it is set up correctly. Leasing agreements should be sound, and assets must be registered correctly on the PPSR (Personal Properties Securities Register). Failing to do so may invalidate the goal of asset protection for which the asset-only entity was established.
We recommend you get legal advice to ensure things are set up properly. If you get this wrong, it won’t work.
It can be complex and a bit fiddly, but the structure works well and is popular in contracting, forestry and transport business where trading companies are subject to risk associated with the likes of health & safety liability, contract performance etc.