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rahul tusnial (chief visionary)     27 March 2014

Asset protection from personal liability company trust huf

A client wishes to take steps to protect assets and business from personal liabilities and to throw interest in business of two HUFs (in which he is Karta) in a trust.   

1] If both HUFs become beneficiaries of trust, and Trustee is a company called COMPANY1, and COMPANY1 as trustee holds 100% shares in the business of the HUF (in COMPANY2) then who is the actual owner of share in COMPANY2?? --> Is it COMPANY1 the trustee or the BENEFICIARIES of the trust?? Isn't the Trustee just a manager and holding the shares in its name just on behalf of the trust beneficiaries?? 
2] This question holds importance in the light of need for Asset Protection ---> Incase the Karta of the HUF (which is beneficiary in trust) has personal liabilities in his personal name..... how and to what extent does it affect the trust property?? For example if Karta of HUF has Income Tax or other dues of say Rs.100 in individual capacity and in personal name, can the IT Dept attach any trust property as mentioned above or it cannot?? Or is it that IT Dept can only attach property particularly in KARTA's personal name and held in individual capacity?? 
3] HUF1 owns Proprietorship business. Karta and one member of HUF have liabilities in personal capacity. What best way to structure the holding in business so the business remains safe from any future attachment due to court decree?? I have given my suggestion in point 2 hereinabove........ any other options?? Or is it that just converting the proprietorship business to company/LLP with HUF as shareholder/partner also insulates the business from any attachment with regard to liabilities in personal capacity of Karta and another Member/Co-Parcenor?? If yes, then unnecessary trust formation, stamp duty, registration costs could be avoided and straight procedure of converting to company can be followed.
These issues have arisen with regard to a client and I am getting mixed suggestions and advice from different legal corners. Hence need substantial argument on the issue from Legal Friends here so that utmost clarity can be brought in this matter. Need a safe way out.
Appreciate. Thnx.


 1 Replies

adv.bharat @ PUNE (Lawyer)     09 May 2016

LLP i.e. Limited liability partnership is best option for u. It will save ur personal asset from attachement incase of debts recovery. for LLP u will be liable to the amount of contribution in ur company. That is liability is limited to the extent of capital contribution in ur company.

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