Why You Need Asset Protection as a Business Owner

Owning and operating a business can be filled with risks and pitfalls for a business owner. Earning your revenue isn’t enough when a lot of threats lurk around your business.

So why exactly do you need asset protection as a business owner?

You need to protect your business from lawsuits, consumer-protection issues, debts and mortgage obligations, claims for damages caused by products or employees – the risks that you as a business owner need to deal with are countless. If you as a business owner don’t know how to deal with these risks properly, they could result in the loss of your assets – both business and personal.

To reduce your exposure to risk as a business owner, it’s necessary to have a comprehensive asset-protection plan. In most cases, small business owners aren’t aware of all the potential threats that can destroy their businesses or that there are options they can use to protect themselves.

As CS&P asset protection consultants explain, it is extremely important to plan your asset protection as soon as possible and protect yourself from claims to your assets. The longer the asset protection plan has been in place, the stronger it will be.

A comprehensive asset protection plan employs legal strategies which are put in place before either a claim or a lawsuit arises, so these strategies can deter potential claimants or prevent the seizure of your assets after a lawful judgment.

Depending on the kinds of assets your business owns and the type of creditors most likely to pursue claims, there are various strategies that can be implemented in your asset protection plan. Some of the most commonly used asset protection strategies are formalizing and incorporating your business in one of the following ways:

1.     Forming a Limited liability corporation (LLC)

By incorporating your business into an LLC, you can form a separate legal entity that protects your personal assets from liability in case of a lawsuit against your business.,

2.     Forming a C corporation

A C corporation is another business structure that separates your personal from your business assets, but it has some advantages over LLC, mainly regarding tax. However, a C corporation often comes with more fees and regulation.

3.     Forming an S corporation

In an S corporation, the profits pass through to the shareholders or the owner, which means they are only taxed once.

4.     Forming a general partnership

In general partnership, at least two people need to be involved. This type of business structure provides less asset protection than the other ones since each of the owners has personal liability for all the debts of their business.

Before you decide to incorporate your business, be sure to talk to a consultant, an accountant or a lawyer to determine which structure fits your business best.

It’s also important that you as a business owner don’t mix your personal with your business assets. Keep separate bank accounts for business and personal purpose, even if you are not yet incorporated, and avoid withdrawing money from your business account to pay for personal services or items, as well as charging your business credit card to pay for your personal stuff.

Another crucial step in business asset protection is insurance because incorporation does not cover all your liabilities. The type of insurance you will use can vary depending on the industry you’re in, but a liability insurance policy is a powerful tool in protecting your business assets.

It is also very useful to you as a business owner to know the law because some state laws can protect you from creditors. If you can’t manage to keep up with laws and rules, it is often recommended you hire a consultant or a bookkeeper who will help your business stay compliant and therefore protect your assets.

Business asset protection strategies can be extremely useful if you’re a business owner. Every penny spent to shield your business or yourself from liability is a penny well spent because working for yourself and being a business owner comes with a sense of self-realization and satisfaction that cannot be replaced by anything else.