While business insurance is important, it cannot protect you from all the risks associated with running a business. A business asset protection plan can help protect creditors from seizing your business and personal assets.
Generally, insurance does not provide enough coverage for all business-related situations. It is important to determine what kind of legal structure you plan to use and what kind of assets you wish to protect in order to create a sound asset protection plan for your business.
What kind of legal structure will you use?
One of the first ways you can establish a business protection plan is by creating a separate legal structure for your business. These can include partnerships and corporations, as well as trusts. Corporations generally include C-corporations and S-corporations. Similarly, limited liability companies (LLC) are a combination of a partnership and a corporation. Some suggest that limited liability companies provide the same protections as C-corporations and come at a lower cost.
Similarly, partnerships can be general or limited. While general partnerships can allow partners equal managing power over of a business, you might wish to set up a limited partnership to protect your personal assets if the business takes on debt.
What kinds of assets do you wish to protect?
The type of legal structure you choose depends on the type of assets you would like to protect, as well as the liability risk they carry. Typically, assets are either considered to be dangerous assets or safe assets. Dangerous assets can include business machinery and motor vehicles, rental properties, commercial investments and other assets that carry a high risk of liability. Safe assets, on the other hand, carry less of a liability risk. They typically include bank accounts, as well as stocks and bonds.
Creating an asset protection plan for your business can be complex. Consult with an experienced comprehensive estate planning attorney to discuss how you can minimize your risks before it is too late.