A lot of business owners have misconceptions regarding the law concerning the relationship between the proprietorship and the owner. Because of that, they usually go for expensive plans for protection of their assets. These plans don’t usually work out in the end. Furthermore, some people avoid these plans hoping that their venture won’t face any kind of lawsuit or accident.
It is essential for one to protect their personal assets from the threats that might be posed by the liabilities of a business.
Below is a guide on a few ways to ensure that, if something goes wrong with your business, your assets are safe from the horrors of being seized or confiscated.
The Entity of Your Business
Many businesspersons set up a sole proprietorship when starting out with their business. However, this option is not the safest one when we are talking in regards to protection of personal assets. This is because, being a sole proprietorship, the owner and the business are considered the same entity and both kinds of assets (work related and personal) come under the same category, exposing your own wealth to the threat of a lawsuit. In that case, your firm isn’t able to pay off its liabilities on its own and you’ll have to pay for them yourself out of your own pocket.
In order to set up the business as an entity, which is separate from the owner, it must be registered as a limited liability company or a corporation. You can even go for a two-layer protection, such as having the assets under an LLC and operations under the name of a corporation. Such mixture of multiple entities make it difficult for any kind of lawsuit to affect you personally.
Segregate Work and Personal Finances
You may think that only setting up your business as a separate entity will not provide adequate protection of your personal wealth. You can start this by separating financial documents, operating the company with checkbooks and other documents issued in the company’s name. All property and assets registered in the name of your company will strengthen the protection.
You need to make sure that you follow all regulations that corporations and limited liability companies are required to follow, paying the proper fees and maintaining all documents as demanded by the regulations. If all documentation is properly insured, the business will be saved from a lot of hassle in recreating documents when it comes to a lawsuit. It will also save you, as an owner, from being personally liable for what may have caused the lawsuit.
Take all Possible Precautions to Prevent Lawsuits
This won’t only keep lawsuits away from you but will also help a lot if you ever face one. This also means that you can’t sit back and relax if you’ve registered your business as a separate entity and have ensured the protection of your assets through separating them from the business entirely. You still need to take measures, such as putting up signs where there are safety hazards and ensuring that the quality of your product isn’t questionable and doesn’t violate any set standards required by the law. If you operate with negligence, the lawsuit can attack your personal assets.
Asset Protection vs. Insurance
There are multiple “asset protection” companies that advise methods to avoid insurance by hiding your personal wealth. You shouldn’t fall into such schemes because it is essential for your business to have proper insurance. They help take the bullet shot by creditors and suing individuals and can usually handle incidents in which the safety of assets (business or personal) is under threat.
However, it is integral that you get the correct policy, the kind of which varies with each and every specification. You can even have separate insurance companies provide protection for the entity and the assets of your business. You can get a review of your company from the insurance agent in order to know what the right policies for your business might be. It might sound confusing at first but once you get to know the basics, you’ll be able to streamline your insurance policy to suit each and every need of your business.
If you really want to protect your personal assets from the liabilities at the workplace, you can start by applying what is mentioned in this guide. It is recommended that you consult a licensed attorney with relevant experience. Once you’re done following the outlined steps, the risk to your personal wealth will be minimal and you can operate your business with peace of mind.
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