Asset protection is a matter of utmost importance for most business owners. Luckily, there are ways to secure your assets. One of the most obvious ways is to establish a great business structure. These methods are relatively easy to follow and understand as well.- Protecting Business Assets
According to a commercial property insurance in Stratford, it’s important to have an asset protection plan in place because in business, anything can happen. There are going to be ups and downs. It’s somewhat inevitable because business posits you to interact with the world. So, the probability of conflict, misunderstanding, and loss is quite real.
For example, lawsuits or legal proceedings are a common sight in sizeable corporations in the technology industry nowadays because of things like intellectual property rights. Therefore, it’s important that you stay ready by protecting your business and personal assets in advance. You could even argue that it’s a prudent thing to do if you’re a business person.
If you’re looking for tips on protecting your business assets, keep on reading. Below are a few tips to help you protect your business assets:
- Choose The Right Business Entity
There are various business structures you can choose from. Normally, people start as sole proprietors and upgrade with time. But it goes without saying that the sole proprietor business has no asset protection. There’s no limited liability protection because a sole proprietor isn’t a juristic person. Therefore, if you default on a loan payment, for example, the creditor has a right to claim repayment in the form of your assets. So, stay clear away from sole proprietorships.
You have far better options such as a limited liability company (LLC), limited liability partnership (LLP), S-corporations, trusts, and so forth. The common advantage that these other business structures share is the presence of limited liability protection for business owners or shareholders. Bear in mind that each business structure is unique and has a different combination of pros and cons. You need to research these specifics in depth before settling for a specific one. Therefore, congruence or fit is an important factor when selecting a business entity.
The type of business you do determines the ideal business structure for you to a great extent. Moreover, financial aspects like tax also need to be considered as well. For instance, understanding dividend tax rates can be crucial in your financial planning. After all, business is a going concern aimed at making a profit. To establish which business entity would be best for your business, consult with a financial or tax advisor.
2. Maintain The Corporate Veil- Protecting Business Assets
Just because you’ve registered and incorporated your business doesn’t mean you should sit back and relax. You need to ensure that you maintain your corporate veil to ensure there are no overlaps between the company’s accounts and your accounts, for example. That means creating separate bank accounts and documents, keeping separate corporate records for annual meetings, and so forth.
- Get Business Insurance
Now, this one is extremely vital. You need to get a good insurance policy to protect yourself in the event of a lawsuit or default. Insurance is supposed to help you to settle your arrears. Therefore, insurance is a splendid vehicle for asset protection for your business.
Note that every insurance company has a unique offer. You need to find the right one because no two policies are going to be the same. For example, commercial property insurance and rental property insurance may entail different coverages.
Umbrella insurance is also important. Umbrella insurance fills in the gaps or overlaps that your existing policies may not fully cover. No matter how great your insurance policies are, you still need an umbrella insurance policy, just in case insurance companies fail to settle the entire amount owing. Thankfully, umbrella insurance is usually cheaper than business insurance.
4. Be Careful With Contracts
Even though a corporation is a juristic person with liability protection, business malpractice and negligence are grounds on which the corporate veil can be pierced. Limited liability protection doesn’t make you completely untouchable. You still need to do your due diligence to be on the safe side. That’s why you need to manage your contracts and agreements to ensure that your dealings are legally compliant.
For example, if you’re in the property sector, make sure your lease agreements and contractor agreements are intact to avoid any legal consequences. Accuracy also matters, even with employment and recruitment contracts. Therefore, you may need to hire an excellent corporate lawyer to help you draft these legal documents. You may also need some tax advisors.
5. Use ‘Tenancy By The Entirety’
The term ‘tenancy by the entirety’ applies to protecting your most prized asset, your home. With this one, you have to confirm whether your state has statutory provisions which offer this designation. If your house has title deeds and one spouse defaults, it can’t be tied to a lawsuit. It protects you from losing your house in the event of a lawsuit. This is great because some creditors have no hesitation in coming after personal assets such as your house when it comes to paying off their dues.
6. Consider Homestead Exemption
This is made possible through statutory instruments on a state-by-state basis. Not every state offers this exemption, but most do. It’ll be worth your while to look at how your state may deal with homestead exemptions. These exemptions assure you that a certain part of the value of your residence is preserved.
7. Register Some Valuable Assets In Spouse’s Name
Provided that there’s some kind of prenuptial or postnuptial agreement between you and your spouse, it may be a strategic thing to do to have some assets registered in your spouse’s name. If one party defaults, creditors have no right to go for assets that are in your spouse’s name.
So, while this may not be the obvious go-to strategy for most individuals, it can work in certain circumstances, especially where extremely high-value assets are involved. It’s also effective when one spouse has a risk-laden lifestyle compared to the other. Therefore, it’d make sense that some or most of the valuable assets be placed in the spouse’s name with a relatively less risky occupation.
Conclusion
Every business owner should aim to create an asset protection plan. It not only protects you but your business as well. Your business and personal affairs needn’t be mixed. That’s why the first step is establishing a good business structure with some form of liability protection. But if you aren’t sure how to go about it, consider hiring a professional accountant or financial advisor to help you.
