One of the legal concepts that are misunderstood the most is how to protect your personal assets and finances against the risk associated with owning a business. Many small business owners have experienced such and find themselves being taken advantage of as it relates to plans being touted for asset protection. These plans are priced really high and usually don’t offer the guaranteed protection that was touted to the small business owner. Other small business owners will try to avoid discussing the topic and will just go ahead and increase their insurance while at the same time hoping that they don’t have an expensive legal battle from an employee or customer.
Asset protection means that your personal wealth needs to be protected from liability threats. This can be a real risk to your personal assets and your business assets. Let’s say you had a client come into your place of business and had a slip and fall accident, what kind of asset protection strategy do you have in place to prevent a personal liability claim against you and your business? Did you know that in such a case, if the client won the liability case, you could even lose your home? This is an appropriate example of the importance of asset protection.
The Right Business Entity
To make sure that you are protected from liability threats to your business and personal assets caused by a lack of protection, here are some guidelines below to follow. When you decide to go into business, you should take time to consider the type of business entity that you will use. You need to choose wisely. If you were to run your business as a sole proprietor, for example, even though, it is the simplest available option, you may have problems as the business progresses. Your personal assets will be up for grabs if you were exposed to a lawsuit. You can start out as a sole proprietor, but be sure to change it later on to a limited liability company or corporation. So, in the event that there is a lawsuit, the corporation will be the first line of attack.
Separate Personal and Business Finances
Keep your personal finances separate from your business finances. Be sure to document everything. Your business should have it is own checkbook. Don’t use your personal checkbook to pay for any business expenses. The company name should be used on all of your documents. Maintain and manage your corporate book and engage in annual meetings, securing and saving the minutes from your meetings.
Always run your business with a high level of trustworthiness. You don’t want to cut corners. In the event of an accident and potential lawsuit, you want to be seen as credible and reliable and not neglectful or fraudulent.
When you own a business and have personal assets, you need to get the right amount of insurance to protect your assets. Make sure you add the insurance cost to your business budget. It is that important to have in lieu of a potential lawsuit.