No matter what line of business you are in, the reality of being a successful entrepreneur is that you open yourself up to a number of unique risks—and the more successful you get, the more risks you face.
Asset protection planning is intended to reduce or eliminate the risks of being in business by shielding your business and personal assets from litigants, creditors, and other potential threats to the fullest extent legally possible. It’s crucial to have asset protection strategies in place from the moment you open your doors, because once a claim or lawsuit is filed, it’s too late. Once a claim or lawsuit is filed, if you try to protect your assets, you could be at risk of being charged with fraud. So take action now, while there is nothing to worry about and many ways to protect your assets.
While the specific protections you need will depend on the particulars of your business and your personal assets, the following four strategies form the foundation of any comprehensive asset-protection plan.
1. Limit liability with business entities
As an entrepreneur, one of the most fundamental asset-protection strategies is setting up the proper entity structure for your business. Without the correct entity in place, your personal assets would be at risk if your business ever falls into debt or is hit with a lawsuit. For example, if your company is structured as a sole proprietorship or general partnership and you go out of business, creditors would come after your personal assets to pay off your business debts.
By structuring your business as a limited liability company (LLC) or Corporation, you can shield your personal assets from liabilities incurred by your business. Such structures establish your company as a separate legal entity that’s distinct from you as an individual, which prevents you from being personally liable for the company’s debts or legal liabilities.
As long as you properly maintain the separation of your corporate and personal assets, both LLCs and Corporations effectively create a barrier between you and the activities of your business. In that case, creditors, clients, and other potentially litigious entities can go after your business assets, but not your personal assets. You can be held personally liable in certain situations, such as if your entity isn’t maintained properly or you mistakenly commingle your personal and business finances.
However, with our legal and financial systems and trusted guidance, keeping up with your entity’s administrative and compliance formalities is a snap. Contact us, as your Creative Business Lawyer®, to find out what entity structure is best suited for your business and how we can ensure you have as much personal protection as possible.
2. Invest in insurance
While setting up a separate legal entity can safeguard your personal assets from your company’s liabilities, an entity will not protect your business assets—that’s where business insurance comes in. And since a single catastrophic event or lawsuit can wipe out your company, it’s vital that you have the proper insurance coverage in place from the moment you open your doors.
The type and amount of coverage your company needs will largely depend on your particular company and its assets. That said, most businesses can benefit from the following forms of insurance: general liability insurance, professional liability insurance, property insurance, and employment practices insurance. Additionally, you should also consider investing in umbrella insurance, which would cover you for any damages in excess of your other individual policies.
Before you sit down with an insurance agent, meet with us. We’ll evaluate your business assets and underlying risks to identify the optimal levels of coverage you should have in place.
Next week, we’ll continue with part two in this series on essential asset protection strategies for entrepreneurs.
We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.