Truth be told, America is a uniquely litigious country, and it doesn’t look like that’s going to change anytime soon. The more assets a business has, the more tempting of a target they become, and the higher the likelihood of being sued for frivolous reasons. For any business, the best offense is defense, and protecting assets, in this case, is the best defense.
As an entrepreneur, you could be hit by both professional and personal lawsuits. Professional lawsuits fall in the line of worker’s compensations, trademark infringement, employee discrimination, breach of contract, among others. Personal lawsuits include divorce, vicarious liability, debt, foreclosure, employee actions, among others.
How Do You Protect Yourself and Your Assets
You may be a good person, but make no mistake, bad things happen to good people too. In this day and age, you don’t even have to be negligent or irresponsible to get a lawsuit. For this reason, protecting assets should be among your business priorities, so when the time comes, and you lose a lawsuit or go into bankruptcy, your assets will be untouchable.
There are several strategies you can use to protect assets from being dragged along in legal battles. In this post, we’ll help you understand how to protect your assets and what you need to know about it. Feel free to check out this guide as well for more information.
Start Planning Early
One of the most crucial parts of asset protection in a company is how early it’s done. You see, the last thing you want to do is start protecting assets after a claim has been filed. This always makes matters worse because whatever you do could be undone by claiming “fraudulent transfer,” which is legal.
Create the Right Business Structure
The first order of business is to create a proper business structure. Choose among four different entities, which are sole proprietorship, limited partnerships, general partnerships, corporations, and limited liability companies.
As an entrepreneur looking to protect business assets, it may be in your best interest to create a separate business entity, like a limited liability company, a corporation, or a limited partnership. It only takes a simple business dispute to destroy and bring down an entire business.
The problem with a sole proprietorship is that it doesn’t separate your business and personal assets, so you could lose your home in a dispute. General partnerships are even worse because if your partner makes a mistake you’re not involved in, YouTube a hit as well. Lawyers can easily come for you because of mistakes made by a partner, and there’s very little you can do to stop it.
Invest in Suitable Business Insurance Policies
Depending on your profession, you may have more exposure to certain lawsuits than others. For instance, real estate agents and financial advisors may be prone to more malpractice lawsuits, in which case they need to have errors and omissions insurance covers. Still, it’s imperative for business owners to have commercial liability insurance, workers’ compensation insurance, auto insurance, and umbrella coverage. It is essential that you also consider your employees as an asset. And opting for a perfect insurance plan such as a disability insurance plan can help you safeguard them from potential dangers. This is especially important if you have employees performing risky tasks. You can check this site to learn more about it.
Understand Contract Liability
As a business owner, you’re bound to be getting into many deals, and with that, many contracts. It’s crucial for you to understand contract liability laws because it’s quite hard to avoid risks. It’s vital for you to always read and understand the fine print of all contracts.
Beyond that, you can protect yourself by having proper lease agreements for rental properties and using the company name for equipment and property titles. You should also ensure the companies you deal with are licensed, insured, and bonded to protect yourself and your assets when problems arise. Having a professional business lawyer go through your contracts before you sign them can go a long way as they will explain all the terms stipulated.
Be Wise About Placing Assets as Security Against Loans
Should you use your business assets as collateral against loans? It may speed up the loan process and get you the amount you need, but be aware of the consequences of that action. Failure to meet the end of your deal means the creditor has every right to take possession, sell, or use your assets as they deem fit to settle the loan.
Keep in mind the valuation of assets is usually a fraction of their total value when you weigh your options and decide to do it. If the assets lose value in the span of the loan duration, you will need to add more equity to settle.
Consider Controlling Instead of Owning
This is a secret of the wealthy and one you can use to your advantage as well. You see, instead of putting assets in your name, it may be more suitable to put them under a company or a family trust. The assets will still belong to you and will be in your control, but technically, on paper, they don’t belong to you, so no one can get to them.
The idea here is to look like your poor on paper by avoiding outright ownership and having total control of your assets nonetheless.
Consider Opening a Trust
This is a popular asset protection strategy, and the beauty of it is that it works. These trusts are for personal assets, though, and it may trigger stamp duty and capital gains tax.
If you have long-term assets, you may want to consider placing them under self-managed super funds. You’ll have to wait until retirement to use them, though. The federal government protects assets in SMSFs, so consider your options.
Consider Homestead Exemptions
Most states offer homeowners protection for their home equity in case they file for bankruptcy. If you declare bankruptcy, the law will prohibit the court from awarding your home equity to your creditors. Not all states do this, though, so check whether the laws in your state allow a homestead exemption.
Protecting Assets: Everything You Need To Know
Protecting assets is essential for any business owner because it could take one lawsuit to take your business down. There is no way of knowing if or when someone will sue you, so the best course of action is taking action and protecting all your assets.
If you found this article insightful, please check out our blog section for more, and don’t forget to share.