If you are an entrepreneur, adopting asset protection strategies is essential to protecting your profits. Asset protection is a form of planning with the objective of protecting assets from creditors’ claims and litigation. There are high risks in establishing your own business, but they come with the potential for high rewards. To ensure your assets are not at risk, below are 5 solutions to entrepreneurial legal trouble.
1. Establish a Limited Liability Business Entity
While sole proprietorships and partnerships are classic business models that are easy to set up, the short-term convenience will hurt you in the long run. Different business structures, such as limited partnership, limited liability company, and corporation, provide the limited liability that all entrepreneurs need. The status of limited liability means your company is not personally responsible for the debts of others. Creating a separate legal entity is one of the first considerations entrepreneurs must take into account to protect their assets. The legal separation between business and personal assets is immensely beneficial. To learn more about how you should structure your business, read our ebook.
2. Separate Multiple Business Ventures
Many entrepreneurs run multiple businesses, but it is important to separate the assets of each venture. Distinguishing the legal entities for each business ensures all documentation is separate. Failure to do this will prompt the demise of all of your businesses if faced with liabilities or debts; if litigation finds one of your companies liable, all of their creditors will be exposed. To protect what you have built, separate the assets of each business.
3. Secure Personal Insurance
Inevitably, problems and accidents will arise in your business. Establishing insurance guarantees you do not have to pay for any losses directly. The type of insurance that is best for you will depend on your individual business and preferences. Reviewing policies and coverage lets you make the most informed decision. Regardless, securing personal insurance is necessary to protect your business.
4. Avoid Personal Guarantees
Signing a personal guarantee will guarantee unwanted stress. A personal guarantee holds you personally responsible for the debts your business accrues if the business is unable to satisfy them. It is in your best interest to negotiate a higher payment to the vendor to eliminate the need for such, no matter how uncomfortable the conversation. In the end, personal guarantees put your livelihood at stake.
5. Transfer Assets to a Trust
An irrevocable trust is ideal for business owners. An irrevocable trust gets assets removed from an individual’s name once an Employer Identification Number (EIN) is created, which ultimately gives the trust its own tax ID which differs from the individual’s social security. Generally, a trust allows a third party to hold assets for the beneficiary. For entrepreneurs, irrevocable trusts relinquish ownership and control of business assets. They protect from creditor assets that may pass on to your family. The earlier you set one up the better, as if you set one up once litigation arises, it may be viewed as liability avoidance by the courts. Here is some more information about setting up trusts.
An asset protection attorney provides individualized help to protect what you have earnt. The hard work you have put into your business venture should never be jeopardized.
To protect your entrepreneurial wealth, contact the Law Office of Inna Fershteyn at (718) 333-2394.