6 Asset Protection Strategies for the Small Business Owner
There are a great many threats to your personal and family assets just because you own them. Add a business into the mix and you multiply those risksi. It is imperative when you start a business that you take action to put asset protection strategies into play. Here are 6 “must do” strategies.
Business Entity Selection
The single freelance operator with no employees and working remotely may be OK setting up as a sole proprietorship. However, for most other businesses, greater asset protection is a must, and varying risk levels arise from:
- Customers that are served at a business location.
- Products that are assembled or produced and sold to customers.
- Services that are provided in the homes of customers.
- Services related to childcare or personal care.
- Employees working at the business or in customer homes or businesses create risks of injury on the job.
- Employee lawsuits against employers, justified or not, threaten your assets.
Explore with a qualified financial advisor the decision between the LLC, Limited Liability Company, the S-Corporation, or a full C-Corporation for your business and financial situation.
The Corporate Veil is Quite Important
Once a corporate business structure is in place, there are requirements related to protecting the protections provided by the business structure. Abide by the business articles of corporation, maintain accurate books as well as income and expense records.
Take a strict approach to identifying the corporate entity on all documents, contracts, invoices, and other agreements with customers, vendors, and employees. Hold the meetings and maintain the meeting minutes as required by state and federal regulations. A misstep in any of these areas can pierce the corporate veil and put your assets at risk.
Get the Proper Business Insurance Coverage
Insurance coverages for business are often custom-tailored to the type of business and its unique risk profile. Work with an insurance professional with experience covering your type of business and risk profile. Cover the specific risks for your business type with affordable insurance.
Also, consider an umbrella insurance policy for your business, personal coverage, or both. It is called “umbrella coverage” because it exists to cover risks that other insurance does not. This makes high coverage amounts affordable, as the coverage only kicks in when other policies are not applicable.
Consider Placing Assets in Your Spouse’s Name
When one spouse engages in high risk activities or has a business with high risk exposure, placing some major assets into the name of the spouse can protect them. Especially when considering the home or other real estate, deeding it to the spouse takes it out of the risk profile of the business. Of course, discuss this with financial and legal advisors, as there can be problems in the case of a divorce.
If Applicable in Your State, Consider Tenancy by the Entirety
Not all states allow this, but if yours does, consider titling your residence as “tenancy by the entirety.” Titling it this way means that if one spouse is sued, the property is statutorily protected from attachment or forfeiture.
Use the Homestead Exemption
Most states offer a homestead exemption for the personal residence. This is a statutory exemption that protects a stated amount of the value of a person’s home from creditors, in bankruptcy, or in some lawsuits.
Getting paranoid is not necessary but getting cautious is the way to protect your hard-earned assets from creditors and lawsuits.