The Fundamentals Of Asset Protection

For anyone who has never been a business owner, running a successful company relies on the basic premise of making more money than you spend. To put it in perspective, imagine you have a house. You manage and pay your bills and expenses without concern. Then you learn your car needs to be replaced, your hot water heater breaks, and someone, unfortunately, gets hurt on your property who now intends to sue you. 

Business owners face unexpected financial issues and litigation too. But unlike the previous example, the business owner wants to separate his personal property from the company. In other words, they need asset protection. They don’t want someone to seize their home to pay off a business debt. 

The Basics Of Asset Protection

The goal is to create a shield between your personal assets and the business. If successful, you stand only to lose the business and the assets/property connected to it. 

People achieve this through structuring their businesses appropriately. In this context, it becomes very obvious why LLC stands for Limited Liability Corporation. When done correctly, your business becomes its own legal entity. This distinguishes it as being separate from you—and more importantly, your personal assets. 

The Choice Of Entity

LLC is one specific type of entity. As is an LLP (limited liability partnership), C Corporation, S Corporation, and a general partnership. Each has benefits and drawbacks, varying levels of tax implications, and applicable rules. 

If you do not choose and formalize a legal entity, then your business doesn’t have a wall of protection separating it from your personal assets. 

Dangerous vs Safe Assets

As a business owner, you should understand the difference between a safe asset and a dangerous one. The factor used to determine if it is safe is whether it poses the risk of liability. In other words, if you run a tree-removal business, the tools being used (heavy equipment too) has the potential to harm personnel and property. 

On the other hand, the bank account you store your money in is a safe asset. Remember, the focus here is asset protection. The importance of dangerous and safe assets is who owns them. The business can own dangerous ones, and the safe assets can be held in your name. An attorney can advise you on how to avoid commingling your assets to increase your level of protection. 

Cove Law, P.A.   

Since 1995, Cove Law has been providing professional legal services to businesses—especially those within the telemarketing industry. If you have further questions regarding business entities or asset protection, contact Cove Law, P.A., to set up your free initial consultation.