While turning a profit is pivotal to the success of a company, this is not the only factor that needs to be considered.
As a business owner, you want to make a distinction between your business and personal assets, so that you limit your personal risk if (when) there are claims against your business. This is called asset protection, and it can involve numerous different strategies.
Why engage in asset protection strategies?
It’s almost inevitable that your business will eventually face a lawsuit of some sort. If there’s no legal distinction between your personal assets and the company’s assets and a claim is successful, you could personally be on the hook for damages that are awarded. This could put everything from your home and vehicle to your bank account at risk. This is why it’s so important to think about strategies that insulate your personal assets before a claim ever arises.
What strategies can be used?
One of the most effective strategies to protect your assets is to choose the appropriate legal structure for the business. Sole proprietors and their businesses are often legally indistinct. That means that even though it’s an easy business model, sole proprietorships may offer no legal protection for your assets in a legal crisis.
Limited Liability Companies
Limited Liability Companies (LLCs) are among the most popular business structures in the U.S. What separates this structure from a sole proprietorship is that the business is established as a completely separate legal entity. Thus, should a legal claim arise, the owner’s personal assets should be insulated.
Limited partnerships
A limited partnership is another useful asset protection tool. As the name suggests, limited partners are generally restricted in the day-to-day operations of the company. The advantage of this is that limited partners have no liability for any business debts beyond what they have already contributed to the partnership.
Trusts
Your business structure is not the only way to insulate your personal assets, you can also utilize trusts. A trust transfers the responsibility of asset management to a trustee, who must ensure that the assets benefit another party (the beneficiary). As you no longer have control over the assets in a trust, these assets cannot form part of any legal claim against you.
These are just some of the asset-protection strategies that may help you. We help businesses and business owners learn more about how to protect what they have from losses. Contact us for a consultation and learn more.