The beginnings of any new company are full of headaches and worries. The main concern generally revolves around generating revenue so you can pay off any debt and start to accrue a profit. Underneath that are the other headaches of licenses and official documents, certain legalities, contracts, hiring and firing employees, marketing your products and much more.
An often-forgotten, though no less important aspect of this entrepreneurial journey, involves asset protection, which might sound scary, especially if your company doors have just opened up. First, it’s important to know that asset protection defends against a variety of legal threats that include trademark infringement, malpractice claims, sexual assault allegations, employee discrimination, faulty products, worker’s compensation incidents, and contract breach claims. Whether or not your company is actually guilty of any of these accusations is immaterial; you can still fall victim to litigious people and frivolous lawsuits, and if your assets are not properly protected, you potentially can stand to lose a lot.
While that does sound complicated the vitality of asset protection is matched by its surprising simplicity. Here are a few tried methods of making sure your company assets are fully protected.
- Use a Business Entity: One of the most important things you can do to protect yourself is to utilize a business entity. This creates a separation or shield between your personal and your corporate assets. If you don’t legally establish yourself as a legitimate Limited Liability Company (LLC), Corporation, or Limited Partnership, you could stand to lose your company as well as some of your personal assets in the event of a lawsuit against you that you lose.
On the flip side of things, if you operate your business without first establishing yourself as a legal business entity, and you are involved in a lawsuit, you, not your company will be facing the suit. Should you lose, whatever reparations that are demanded must be paid by you. These civil suits can sometimes result in payouts that amount in the tens of thousands, an amount that is never easy to come by, especially if you have just started your business.
- Keep Business and Personal Matters Separate: Once you create your business entity, be it a corporation or an LLC, you must maintain it. Having legal company documents alone won’t necessarily protect you in the event of a lawsuit. You should, therefore, keep everything company-related separate from your personal life, including things as simple as transferring funds from your business to your personal bank account, and vice versa.
So, purchase all company properties or equipment in the business name, establish corporate bank accounts, and keep detailed notes on all the goings-on of your company. A piece of paper can say you’re a registered LLC or corporation, but this often needs to be backed up by various other transactional pieces of paper.
- Get Business Insurance: This is also a vital aspect of protecting your assets. You should always have several types of business insurance ranging from professional liability insurance, workers’ compensation insurance, Product liability insurance and more
When you form a company, especially one in which you are going to have employees or contract workers, it is generally recommended that you should purchase worker’s compensation and commercial liability insurance for the business. Workers’ compensation insurance protects you from possible employee lawsuits, while also ensuring the protection of your employees should they get injured while on the job. Commercial liability insurance protects you if someone, for instance, a customer or visitor to your business gets hurt on your premises, or if someone gets injured as a result of an action taken by you or an employee.
- Umbrella Insurance: This one works in tandem with the previous tip. An umbrella insurance policy does exactly what it sounds like; it provides additional backup coverage in case your existing policies are not enough to cover the full scope of the damages your business is facing. This is an important protection, as, if you are faced with a lawsuit that far exceeds the coverage purchased with your business insurance, this will make sure your personal assets don’t take the hit.
- Individual Retirement Accounts: This may not seem quite as obvious as the others. Federal law protects up to one million dollars in an IRA account in the event of bankruptcy. On a state-by-state basis, this protection can become even more generous. The tactic here is simple: take any cash you won’t need until you reach retirement age, and put it in an IRA, which is one of the best ways to automatically ensure your personal monetary protection. In addition, these accounts can also provide certain tax benefits, so long as they are managed properly.
- Spousal Protection: If you are married, titling certain assets in your spouse’s name provides automatic protection. If you are in a riskier occupation, and your spouse has a safer career, placing assets like your home or car in the name of your spouse defends those assets from creditors in worst-case scenarios.
Assets in one spouse’s name are separate, and can generally not be reached by the creditors of the other spouse. When establishing this type of legal titling plan, it definitely pays to have a lawyer such as those of the law firm of Dallas Business Litigation Attorney help you out, as they’ll always know the best way to strategize and improve the protection of your assets.
- Trusts: Another thing that begs looking into, is the establishment of Trusts. You can transfer ownership of your assets to an Irrevocable Trust. Once owned by the Trust, they are no longer owned by you, and cannot be seized by creditors. Trusts also allow you and your family to receive an income if necessary.
- Take Action Now: The last one is also the simplest and most important tip; do not wait. Waiting until a lawsuit happens to protect your assets is too late. The best offensive measure against lawsuits is a defensive one; multiple layers of protection established from the very beginning, so that, should you face a lawsuit, you won’t need to worry.
While operating your small business will no doubt be full of headaches, asset protection doesn’t have to be one. Take just a few proactive steps to plant a sturdy shield against your assets; whether or not the strength of that shield will be tested is irrelevant, because if it is, you’ll be really happy you established asset protection.