Understanding the Tools for Asset Protection Planning

For your asset protection plan to be effective you need to clearly understand the tools that are available to you for the job. Someone once said that if the only tool in your tool box is a hammer then you would see everything as a nail. Many financial planners recommend only one tool. But to be effective one needs a variety of tools. Lets discuss these.

The first tool we will look at are the different legal entities that can be used for asset protection planning. Prudent investors realize that if you invest as a natural person, then you are vulnerable as you have no protection from creditors. Any creditor can sue you in your personal capacity and attach all your property. That is why investors supported by law makers worldwide invented something called a juristic person.

Jason Lee puts it this way, “juristic persons are legal entities that allow natural persons to have a separate legal personality, almost like a twin brother who has superhuman powers who is treated differently in the eyes of the law.” It is as if you are hiding your assets into a phantom twin that others cannot see and creditors cannot touch.

A note of caution here is that as part of asset protection planning there are certain corporate formalities that need to be kept in place in order that this phantom twin will remain inaccessible to creditors. If these formalities are not kept then the corporate veil will be pierced resulting in creditors accessing the assets. These include doing annual filings of company papers and always observing the differences between your person and the juristic person.

These  juristic persons are considered separate legal persons apart from your natural person. Put simply assets and liabilities owned by these juristic persons are considered to be separate from your own liabilities and assets Since you do not own these assets personally under certain circumstances it means you are not liable for the liabilities of these legal entities even though you own the entity you created.

The most common ones in Zimbabwe are private limited companies, public companies, private business corporations and trusts. For our purposes we shall exclude public companies as most new investors will not be interested in public companies since these have serious regulatory issues to comply with.


“If you invest to buy a property ( editor:or to make any investment) in your own name without the protection of a corporate structure, you are committing investment suicide.” Jason Lee

Let us start by looking at companies. First a definition: A company is“a body corporate with one or more persons formed for a lawful purpose of carrying on any business that has for its object the acquisition of gain by that association, and which has been incorporated under the Companies Act (Chapter 24:03,  “the Act”) or any other law, and whose liability is limited by shares or guarantee.” Source: Nkala and Nyapadi on Company Law In Zimbabwe, 1995, p8.

1. The Private Company

This is governed in Zimbabwe by the Company Act Ch 24:03 as amended. Doing your business as a private limited company is similar to have your other self who runs the errands for you and is controlled by you and yet remains separate and is judged as a separate legal person.

It refers to any company other than a co-operative company, which by its articles –

  • Restricts the rights to transfer its shares; and
  • Limits the number of its members to 50 (excluding current and ex- employees).
  • Prohibits an invitation to the public to subscribe for any shares or debentures of the company and so Has restricted membership   not generally open to the public.
  • Is not subject to onerous statutory regulation for the protection of investors, unlike a public company.
  • Is cheaper to run than a public company and is best suited to small to medium businesses that have limited capital requirements.
  • Can commence business and exercise its borrowing powers immediately upon registration without issuing a prospectus or lodging a statement in lieu of a prospectus, unlike a public company.
  • Is neither obliged to hold a statutory meeting or issue a statutory report, nor to file its annual accounts, auditors’ or directors’ reports with its annual return unless it has a public company amongst its shareholders or is a subsidiary of a public company.
  • In the case of the smaller private companies, there is no legislative requirement for the appointment of an auditor.
  • NB. Does not offer a limitation of liability if it has no members and trades regardless for more than six months – “proprietor” will be liable for all the liabilities incurred by the business after the elapse of the first six months. In this case the company act clearly shows that the corporate veil will be lifted.

.Lets test this legal strategy for asset protection by examining a case that actually played out in a Zimbabwean Court. I am thankful to my sister Nancy Samuriwo who shared this case with me. Here goes the case:

Mkombachoto v CBZ Ltd. and Anor . : ‘A Tale of When  the Big  Gun Fired Blank Shots’ 2002 (1) ZLR 21

The facts:

  • Applicant  obtained an overdraft from the bank and mortgaged her immoveable property as security for the overdraft. She repaid the overdraft and sought return of her title deeds as she wished to donate the property to her minor son. The bank refused to return the title deeds on the grounds that she was a guarantor of loans to two companies of which she was a director and the deeds were the bank’s only security (although she was not the sole guarantor of those loans). The bank alleged that the Applicant was disposing of her property in order to defeat the bank’s right to recovery, and that without the bond, there was no other way of recovering the monies loaned to the Applicant and her companies. Applicant applied to the High Court for an order compelling the bank to return the title deeds to her.

The Court Ruled::

  • That the bank’s claim to a lien (a right tacitly conferred by law on a person who is in possession of the property of another, on which he has spent money or monies worth, and entitling their holder to retain possession of the property until fully compensated) should fail.
  • That the lien is a limited right which does not confer the holder a power to have the property held over sold in execution to satisfy the claim.
  • That a mortgage as a lien, is always accessory to a principal obligation.
  • That the mortgagor’s liability is only in respect of the obligation for which the mortgage was undertaken and no other.
  • That the court may only “lift the corporate veil” and its regard to the separate legal personality of a company in limited circumstances, such as fraud or manifest injustice.
  • That there was no fraud in this case nor was there any manifest injustice. The bank could have sought security from the guarantor’s of the loans to the companies but did not do so.


  • Mkombachoto’s main assertion which succeeded in court, was that the registered bond was a security for the overdraft which had been extended to her as a natural person and not to two companies (separate juristic persons) Spencer Sullivan Asset Management (Pvt) Ltd and Structured Risks Investments (Pvt) Ltd hence the outstanding indebtedness were liabilities of these companies and their separate legal personalities and not her liability.
  • The instances in which the courts will lift or pierce the corporate veil are limited and are an exception rather than the norm.

In tomorrow’s posting we look at Private Business Corporations. Hang in there.

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