Establish your business as a limited company so that business assets and liabilities are separate from your personal assets. Try to avoid, or limit the extent of, any personal guarantees you are asked to give for business borrowings.
Avoid concentrating all your and your family's wealth in the business. The consequences of a business collapse can be particularly severe if several family members work for the business, or if all your savings (and your pension fund) are invested in the business.
Ensure that your spouse has some clearly defined personal assets, including a separate bank account from you.
If you need to ask family members to invest in your business, only ask for amounts they can afford to lose. Where possible, ask for secured loans or investment in preference shares, so that family members will rank (marginally) higher in your list of creditors if the business collapses.
Be aware that for these steps to be effective, you need to take action in advance. Once your business is in trouble, paying off family creditors or granting them extra security is likely to be ineffective: steps like this can be overturned by the court. Similarly, you cannot simply withdraw capital, or sell assets to family members at discounted values: in the worst case, you might be charged with fraud and the directors made personally liable for the business debts.
You should also note that protecting your family's interests might limit your options for financing the business. For example, external lenders are likely to be reluctant to lend to a company with limited equity and where all available security has already been pledged against family loans. If your business is struggling, but you feel future prospects are good, your only alternative to insolvency may be to ask family members for unsecured investment.
