There are many benefits of being a business owner. For some, it is the ability to maintain a healthy home life. For others, it is the ability to have independence, autonomy, and creative control of their own work. For nearly every business owner, there is a high level of personal satisfaction in the creation of a company. But being able to safeguard and protect that freedom is paramount to the success and longevity of a business.
Creating an effective asset protection strategy entails three steps:
- Drafting the right entity structure.
- Creating clear separation between assets.
- Gaining insight into what risks the business may encounter.
Creating a legal entity that not only allows for a good tax strategy, but also creates boundaries around business assets and reduces the liabilities that can occur in the normal course of business, is key when creating an asset protection plan. Limited Liability Companies (LLCs), C Corporations, and S Corporations are entities that can create a clear separation between business and owner. More details about these different structures can be read here in our April 2019 post.
After the entity is legally created, it may seem that the asset protection strategy is in full effect. That is only the beginning. The next step is to transfer the necessary assets into the name of the entity: bank accounts, property, etc. Doing so allows a “corporate veil” to be established. It also allows business owners to purchase insurance to protect the assets and the corporation.
Know Your Risks
Now that the assets are separated and the entity is established, the last thing to be aware of is the four risks and pitfalls that could entangle any business owner.
- Liability torts, property damage, natural catastrophe
- Pricing risk, liquidity risk, judgements, taxes, debt
- Product failure, reputational risk, customer satisfaction, employee issues
- Competition, social factors
Successful business owners are faced with challenges and risks every day. Formulating an asset protection plan that not only protects your business now, but also allows for advantageous tax planning and a smooth succession plan, requires not only competent legal counsel, but also an experienced financial planner. Contact your advisor about how you can best protect your assets and your future.
*Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional adviser should be consulted before implementing any of the strategies or options presented