Sales are up. Profits are strong. The bank balance looks healthy. Everyone starts sleeping a little better.
Well, almost everyone.
Because sometimes a business can become so successful that it quietly creates a new problem: too much wealth sitting in the wrong place.
That was the situation for one of our clients.
They operated a successful business through a company that had taken off over the past couple of years. Profits were now exceeding $3 million per year, and the company had built up significant retained earnings (i.e assets in the company).
Sitting inside the trading company was a $6 million term deposit.
On paper, that looks great.
In practice, it raised one very important question:
Why was $6 million sitting inside the riskiest entity in the group?
The company was not just running the business.
It was also holding the profits.
That matters because a trading company is usually the entity exposed to the day-to-day risks of business. It deals with customers, suppliers, employees, contracts, debtors, creditors, leases, disputes, and all the other fun little surprises that make business ownership feel like a group assignment where no one else read the brief.
Some cash should absolutely stay in the trading company.
You need working capital. You need funds for wages, tax, suppliers, stock, equipment, growth and the odd Tuesday where everything breaks at once.
But once cash reserves move beyond what the business reasonably needs, it is worth asking whether those funds should still be sitting in the trading entity.
In this case, the $6 million term deposit had become more than a cash buffer.
It was accumulated wealth.
And it was sitting directly inside the company carrying the trading risk.
There was a slight issue underneath all of this.
The shareholder of the trading company was an individual.
The structure had been set up by another accountant years earlier. This is not how we would generally recommend structuring a business like this.
Why?
Because when an individual owns the trading company directly, it can limit your options.
If the company has built up surplus profits and you want to get those profits out of the trading company, the obvious option is to pay a dividend to the shareholder.
But in this case, that shareholder was an individual already on the highest tax rate.
So, the alternative was effectively to pay a $6 million dividend directly to the individual.
And tax-wise, that wasn’t going to end with everyone high-fiving around the boardroom table.
So, while the business had strong retained earnings, the structure made it hard to move those funds out of the trading company in a tax-effective and commercially sensible way.
That is why the restructure mattered.
The solution was to restructure the group by interposing a holding company above the existing trading company.
In plain English, that means a new holding company was put in place to own the shares in the trading company. The individual then owned the shares in the holding company.
The trading company continued running the business.
The holding company became the entity that could hold accumulated profits and group wealth.
Very exciting naming convention, I know. “Trading company trades. Holding company holds.” Someone in corporate structuring really went home early that day. 😉
Once the holding company was in place, retained profits could be paid up from the trading company to the holding company by way of dividend, subject to the right tax advice, documentation and company law requirements (of course).
The result was that the $6 million term deposit was moved out of the risky trading company and into the less risky holding company.
👉 Same money. Smarter address.
The key was flexibility.
This was not about draining the trading company and leaving it with three coins and a motivational quote.
The business still needed access to cash if required.
By moving the retained earnings into the holding company, the client had more options.
The funds could remain in the holding company as a reserve. They could be loaned back to the trading company if the business needed working capital or funding for growth. They could also be loaned to a separate company for investment purposes.
That gave the client a cleaner separation between:
👉 the entity carrying the trading risk
👉 the entity holding accumulated profits
👉 future entities that may be used for investment activities
That separation is often where good asset protection planning starts.
Not because it makes risk disappear.
It does not.
But it can stop years of retained profits from sitting unnecessarily close to the day-to-day commercial risk of the operating business.
After the restructure, the client had a more sensible group structure.
The trading company kept operating the business.
The holding company held the accumulated retained profits.
The $6 million term deposit was no longer sitting inside the entity exposed to the main trading risk.
The client also had the ability to move funds around the group in a more deliberate way, with proper loan agreements and documentation where required.
In other words, the structure now matched the reality of the business.
The trading company was there to trade.
The holding company was there to hold value.
And the client had a better platform for future asset protection, investment and long-term planning.
No confetti cannon. No “secret tax loophole”. Just proper structuring doing its job quietly in the background, which is usually where the useful stuff lives.
If your business is making strong profits, retained earnings can build up quickly.
That is a good problem.
But it still needs attention.
At some point, business owners should ask:
How much cash actually needs to stay inside the trading company?
There is no universal answer. Every business needs different working capital depending on its size, industry, risk profile, debt levels, tax obligations and growth plans.
But if your trading company is holding significant surplus cash, or other assets, it may be time to review the structure.
Especially if the company is exposed to:
• customer or supplier disputes
• employee claims
• contract risk
• industry risk
• personal guarantees
• operational debt
• future investment plans
• succession or estate planning issues
The earlier you review this, the better.
Asset protection planning works best when everything is calm. Once a dispute or claim appears, options can narrow very quickly. Like trying to buy home insurance while the kitchen is actively on fire. Bold, but unlikely to go beautifully.
This type of restructure needs proper advice.
There are tax, legal and commercial issues to work through, including company law requirements, dividend capacity, franking credits, Division 7A, loan agreements, asset protection limitations, and the broader purpose of the structure.
It is not something to copy and paste from an article.
The right structure depends on the business, the shareholders, the risk profile, and what the owners are trying to achieve.
But for the right business, at the right stage, this kind of restructure can be very powerful.
If your business has built up significant retained profits and assets, it may be time to ask a simple question:
Is the wealth sitting where it should be?
A structure that made sense when the business started may not be the right structure once the business is generating serious profits.
That is not a failure. It is growth.
But growth changes the risk profile, and your structure needs to keep up.
At PAL, we help business owners review their structures, protect wealth, and plan for the next stage without accidentally creating a tax bonfire in the process.
If your trading company is holding more than it reasonably needs, let’s talk.
We can help you work out what should stay in the business, what could be moved, and how to structure it properly.
Protect the wealth.
Keep the flexibility.
Do it before there is a problem.
Because building a successful business is hard enough. Leaving the spoils sitting in the firing line is just making the game harder for no good reason.
Disclaimer: This article is here to give you general info only, not professional advice specific to your unique situation. While efforts are made to ensure accuracy, the content may change over time. We can’t take responsibility for any decisions based on the contents of this article, so be sure to chat with your accountant or advisor first!
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