Running a successful business means more than finding ways to gain profit. You also need to ensure that your assets are protected from lawsuits and claims because these expenses can result in big losses. The most common risk factors include claims for damages caused by your employees, debts, mortgage obligations, product liability, and so on.
In order to protect your company’s assets, you need to have a foolproof plan. Here are 6 crucial strategies to consider as part of your asset protection plan.
- Choose the Right Business Entity
When it comes to asset protection, the two best options available for small business owners are a limited liability company (LLC) and a corporation. These two business entities will limit your liability in your business structure in order to avoid losing your personal assets if your company faces financial problems.
In most cases, an LLC is an even better choice than a corporation for small business owners, although tax ramifications and estate planning should be carefully considered.
- Keep Your Personal and Business Assets Separate
Another way to protect your assets is the corporate veil, which shields your personal assets from creditors if your company loses or settles a lawsuit. This means that creditors can only come after your business assets, while your house, car, and personal bank accounts will remain protected. This separation of assets may include:
- Maintaining business bank accounts
- Acquiring a business credit card
- Insuring your LLC
- Keeping detailed financial records
- Adequately funding your LLC from the start
- Signing documents with your company name
- Fining annual reports and other filings in a timely manner.
- Purchase Appropriate Insurance
Insurance is an important part of your business as it enables you to take care of incidents and gives plaintiffs another target. Take some time to make sure you get the right insurance policy.
For instance, owning a retail store requires different types of insurance than owning a rental property.
In addition, consider buying commercial auto insurance for the cars, vans, trucks, or other vehicles you use in your business. Another option is to purchase umbrella insurance which protects you from personal injury claims above the standard coverage offered by your auto and home insurance policies. So, get the best insurance policy for the cheapest rate and safeguard your company’s assets.
- Use Proper Contracts and Procedures
The main reason why contracts are important for protecting your business assets is that they help set boundaries and expectations for everyone who comes into contact with your business.
Some of the most important contracts that you need in your business today include employee contracts, vendor contracts, independent contractors contracts, and contracts for services.
Contracts can feel quite overwhelming, but you can always hire a lawyer to help create these important documents. Consider also working with asset protection specialists, legal and tax advisors to help you with your business.
- Create an Asset Protection Trust
You might have already heard how wealthy individuals use offshore trusts in locations like Belize and the Cook Islands to protect their assets from creditors. Asset protection trusts can be quite expensive to establish and maintain, but the good news is that some US states, including Delaware, Alaska, South Dakota, Nevada, and Rhode Island, now allow asset protection trusts.
An asset protection trust is the strongest corporate structure that can be created to protect your business assets from lawsuits and creditors. It’s a separate legal vehicle, which can own bank accounts, property, and other asset classes. These trusts might even allow you to protect your children’s assets.
It should be noted, however, that APTs are quite complicated, so it’s best to work with an attorney who is experienced in the field.
- Transfer Assets to Your Spouse’s Name
If your spouse is in a less risky profession, you can choose to place certain assets in their name. Once you do this, creditors will have no right to claim that property.
However, you need to be careful and ensure that your spouse is reliable because if you divorce, the end results could be different from what you intended.
Protecting your business assets is always important, so be smart and develop a solid plan for success.
While it may seem that there are many rules to follow in order to keep your business safe, in practice, it is not too difficult. As long as you have the tips discussed here in mind and you work with experienced professionals, such as financial advisors and attorneys, you will be able to protect your assets and continue growing your business.