How to Protect Assets: Both Personal and Business

Larry DonahueGeneral Liability, Insurance Agents, Product Liability

The analogy is a bit crude, but I tell my clients to think of asset protection sort of like birth control:  No one method is perfect, and it’s best to have a number of methods in place to maximize protection.  Liability protection.

Protecting assets means minimizing liability.

When you own or run a business, I strongly recommend the following to maximize protection of assets (i.e. your personal wealth and your company):

  1. Operate your company as a LLC or Corporation, instead of a sole-proprietorship or partnership.  If there is any opportunity for harassment or privacy concerns for the owners, consider an Anonymous LLC.
  2. Make sure you have the right business insurance in place.  At a minimum, this will be Workman’s Comp and General Liability (GL).  Depending on the size of your company (i.e. in employees and/or revenue) or what your company does, you may need additional forms of insurance, including cyber, professional liability, casualty and more.
  3. Strictly enforce all third-party relationships with contracts.  You should not only have a standard contract for ALL YOUR CUSTOMERS, CLIENTS OR PATIENTS, but you should have a standard contract for your employees, contractors and vendors.  Any relationship with a third-party could create risks and liabilities for your company, and you want to make sure you have strong contracts that manage liability, warranties, intellectual property, indemnities, scope of deliverables, what is owed, billing policies and more.  Contact Law 4 Small Business to seek advice and help with your contracts.
  4. Consult with the right specialists, to make sure you’re doing things correctly.  These specialists should include, at a minimum:
  • An HR Specialist to help make sure you have the right policies and procedures in place, so you don’t give an Employee or Contractor an opportunity to file a complaint or otherwise sue the company.
  • A CPA or Accountant, to make sure you’re properly accounting for all taxes, and reporting properly.
  • A Business Attorney, to make sure you have the right contracts and legal compliance issues dealt with as appropriate.
  • A Business Insurance Broker, to make sure you have the right insurance and coverage in place (even if you think you have insurance, you may not have the right coverage, and may be either under insured or paying too much because you’re over insured).

Avoid giving a lawyer an opportunity to “pierce the corporate veil.”  Commingling money or resources, not following corporate formalities, under capitalizing the company, and using the company as your “alter ego” are examples of ways lawyers can try to not just sue your company, but sue you personally.  Keep a proper set of financials for your company.  Have a separate bank account for your company.  Don’t use personal funds to pay bills for your company, and don’t let your company pay your personal bills.  Use an accountant to help you understand how to move money between yourself and your company properly, legally and to the most tax-advantageous to you.

No one thing above is perfect.  To operate a company effectively in today’s society, it’s necessary to use all the above techniques and methods.  Don’t risk your company, your livelihood and your personal assets by cheating on any of the above suggestions.

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