Being a successful business owner means opening yourself up to a number of different risks. Asset-protection planning is essential to reducing stress and eliminating the risks associated with your business. Litigants, creditors, and other potential threats are always working against you. It’s crucial that you have strategies in place from the moment you open your doors. Once a claim or lawsuit is filed, it’s simply too late.
The following four strategies create 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. Creditors could potentially 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. These structures establish your company as a separate legal entity from you as an individual. This prevents you from being personally liable for the companies’ debts or legal liabilities.
As long as you properly maintain the separation of your business and personal assets, creditors, clients, and other potentially litigious entities can go after your business assets, but not 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. Most businesses can benefit from the following forms of insurance: general liability insurance, professional liability insurance, property insurance, and employment practices insurance. Before you sit down with an insurance agent, meet with us at Truest Law so we can evaluate your assets and determine the optimal coverage you should have.
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. These agreements are designed to protect your company’s most essential elements.
Because legal agreements govern the rights and responsibilities of every party you do business with, from clients and vendors to employees and contractors, these provide your company with the most protection.
4. Protect Your Business With Trusts
If you’re looking for the maximum level of protection, you may want to consider using specially designed trusts to safeguard your business. Trusts are set up so that your business is owned by the trust, and not owned by you. This works because you can’t lose what you don’t own.
These asset-protection trusts are not the same as the living trusts designed to protect the inheritance you want to leave for your family. Living trusts are revocable, meaning you still own the assets held by the trust while you’re alive. Because you still retain ownership of the assets held by revocable living trusts, a revocable living trust does not provide you with any asset protection from creditors. Asset protection trusts, however, are irrevocable.
Having a trusted advisor who is trained to look at the full array of asset protection strategies and implement those which are best for you is essential for the safekeeping of your company. To ensure these strategies are put in place and maintained properly, contact us at Truest Law today to schedule an analysis of your business’ current and future risk exposure. We can ensure your company’s legal, insurance, financial, and tax foundation is strong enough to withstand whatever threats it might face.
