No matter what line of business you are in, the reality of being a successful business owner is that you open yourself up to a number of different 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. And it’s crucial to have these strategies in place from the moment you open your doors, because once a claim or lawsuit is filed, it’s too late.
In fact, once a claim or lawsuit is filed, if you take certain actions 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 you still have access to a full array of options to protect your business and its assets.
While the specific protections you need will depend on the particulars of your business and personal assets, the following four strategies form the foundation of any comprehensive asset-protection plan.
1. Limit Personal Liability With Business Entities
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 business 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. That said, you can still 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. You would also be personally liable if you signed a personal guaranty for a company debt.
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 your Family Business Lawyer™ to find out what entity structure is best suited for your business and how we can ensure you have the maximum protection possible for your personal assets.
2. Invest In Business 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 launch your business.
The type and amount of insurance 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 that exceed the coverage limits of your other individual policies.
Before you sit down with an insurance agent, meet with us, your Family Business Lawyer™. We will evaluate your business assets and underlying risks to identify the optimal levels of coverage you should have in place.
3. Put Sound Legal Agreements In Place
Although using proper contracts and business agreements might not seem like a major priority for asset protection, the value of these documents should never be underestimated. In fact, these agreements are designed to protect your company’s most essential elements: your personal liability, your personal and professional relationships, your intellectual property, and your trade secrets, to name just a few.
In addition, legal agreements govern the rights and responsibilities of every party you do business with, from clients and vendors to employees and contractors. Given the importance of such documents, you should never rely on do-it-yourself (DIY) legal documents you find online when creating your business agreements. Instead, reach out to us, your Family Business Lawyer™ to support you in creating, reviewing, and updating your company’s legal documents—even those created by another lawyer—to ensure you have the most robust legal protection in place at all times.
In all cases, you must enter into legal agreements in the name of your business entity, not in your personal name. And whenever possible, be sure that your legal agreements include provisions requiring conflict resolution through mediation and arbitration, before litigation.
What’s more, in certain cases, the terms of your business agreements can be drafted to limit the level of liability and potential damages your business would face should a contractual dispute arise. That said, when it comes to limiting liability through contracts, state laws vary widely, so your agreements should be drafted and reviewed by a business attorney licensed in our state like us, your Family Business Lawyer™.
4. Comprehensive Risk Management
To ensure these strategies are put in place and maintained properly, having a trusted advisor like Bryant & O’Connor Law Firm is a must. We can help you develop, implement, and enforce a full array of asset protection strategies to manage the different risks you are likely to face at every stage of your company’s evolution.
Contact us, Family Business Lawyer™ today to schedule an analysis of your business’ current and future risk exposure. Based on that assessment, we can ensure your company’s legal, insurance, financial, and tax (LIFT) foundation is strong enough to withstand whatever threats it might face throughout its life cycle. Contact us today to learn more or schedule your appointment.
This article is a service of Daniel O’Connor, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses 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 a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.