Personal asset protection should be the foundation of every good business. An entrepreneur who has made the simple mistake of having a sole proprietorship can fall into debts that their small business has incurred. They won’t be able to protect any of their personal assets when someone makes a claim against their business. Every single asset can be targeted.
One of the things entrepreneurs must check out is how captive insurance law works for their business. It’s one of the safest ways to protect the business from lawsuits and other claims since it is tailored to your business’ needs and it can reduce operating costs.
Understand the Risks
If this is the first time you’re getting into a business, you must understand the risks that you are taking by simply forming an S corporation or a limited liability company (LLC). For example, your business can be sued by a disgruntled employee or a customer. If there’s a situation that merits the filing of a case against your business, a lawsuit can eat up your personal assets (if they are not protected).
Talk to a Lawyer
Consult a lawyer before setting up your business. Better yet, have a lawyer on retainer so that they will be available to you whenever you need to consult them about business matters. A lawyer can discuss with you the different benefits of the business classifications and what would be the best for personal asset protection.
Maintain a Corporate Veil
With a corporate entity, it’s not just about having the articles of incorporation in your drawer and brandishing it with a lawsuit is filed. You can protect your personal assets by using your corporate’s name on anything that has to do with the business—bank accounts, documents, and property titles. The assets should be put under the business’ names so when and if a lawsuit becomes valid, only these assets will be put in jeopardy.
Follow Lawful Contracts and Procedures
The easiest way for creditors to attack your company is if you have engaged in unlawful or negligent dealings and transactions. You need to make sure that all your contracts are fool-proof and that you have one for every person you hire or partner with. Do not hire people under the table or have them do illegal transactions for you. When it comes to professional dealings, rely only on professional means of communicating—never email. Check your partners if they are properly licensed, bonded, and insured.
Place Assets Under Your Spouse’s Name
It is strategic to place assets under your spouse’s name if your business or occupation is riskier than usual. The only thing stopping other couples from doing this is the probability of divorce. But if there is a clear agreement with your spouse over the matter, your creditors won’t be able to run after the separate assets of a spouse. This is where a prenuptial or postnuptial agreement will come in handy.
There is no guarantee in running and managing a business. There are always some risks involved. But you need to give your business the opportunity to grow. One of the ways to do that is to protect your personal assets to give you more room to take risks.