Startup Asset Protection
Best-laid plan
We all dream of our chance at success. For many American people today, this dream isn’t limited to owning a home, having a couple of vehicles in the garage, mounds of wealth, and raising a big family. Though, success may still include some, if not all of the previously mentioned, owning a business and being your own boss is the new standard for success. There is nothing more thrilling than taking life by the reins and directing it towards one’s own vision. Many hopeful entrepreneurs are jumping right in, taking brave steps, starting their own companies. And while there are no limits to the success that could be achieved, there are also no guarantees either. Most startup businesses fail because their plans never included planning to fail. It is only when we truly take into consideration the possibility that all may not go according to plan, that we can plan accordingly. If you are in the beginning stages of planning your business, this is great news. you can safeguard your company and personal assets from the very start. For those that are already well into the day-to-day grind of running your company, rest assured, It is never too late to take action in protecting your business assets. It is always advisable to consult an attorney before making any major business decisions. Attorney, Matthew Rossetti, is an expert in startup business formation and asset protection. He will assist you in creating the ideal strategy for your organization’s specific needs. Here are three top asset protection strategies to give you a solid start in safeguarding your assets.
1. Just business, nothing personal
Bootstrapping a business is the method many entrepreneurs, with little to no outside resources, take to get their organizations up and running. Understandably so, most of these individuals start operating as a sole proprietorship due to a lack of funds. Regrettably, a sole proprietorship will not protect your assets, leaving you completely vulnerable to creditors and lawsuits. An individual may stand to lose everything, in the blink of an eye. Don’t put your house, car, savings, and other personal assets in jeopardy. It is paramount that you make a clear distinction between your personal and business assets from the very start. Limiting your personal liability is done by simply forming a Corporation, Limited Partnership (LP), or Limited Liability Company (LLC). This may cost a little more upfront but it is affordable and will be money well invested, ensuring the success of your business and peace of mind. A business entity operates as a “person” who engages in business and is put at risk doing business, it can file for bankruptcy if need be, as well as sue or be sued. Don’t let that “person” be you. If the business fails you are able to protect yourself with limited liability or a corporation.
2. Insurance + Insurance
Business insurance is crucial, regardless of the size of your business. Be sure to include it in your startup budget. This will be deductible as a business expense for the year’s taxes. There is a broad range of insurance options to choose from. Due diligence must be used when selecting the correct insurance policy for your particular organization’s needs. In your exploration, you will find options for liability insurance, property insurance, business interruption insurance, third party liability insurance, directors and officers errors, and omissions insurance, and much more. Insurance gives you the ability to take care of incidents that may arise in your business and in its dealings, as well as provide liability coverage in case of a lawsuit. Whichever type of insurance you choose, understand that it must be owned by the entity, not by you, the individual. Never mix the company’s insurance with your personal insurance. For example, the car that you use for work should be insured through the entity, not grouped in with your standard home and car bundle insurance packages.
Once you have acquired adequate business insurance you will want to include a fail-safe plan, umbrella insurance. This type of insurance functions as an umbrella over any other insurance policies that you may carry. It is meant to provide coverage for everything that your other insurance policies missed. When your existing policies cannot cover settlements, umbrella insurance can help you avoid wage garnishment and asset seizures. However, do keep in mind, it will not cover any negligent, criminal, or reckless activity.
3. The backup plan
Having a risky occupation or lifestyle can increase the potential of vulnerable assets. If you have taken all of the above measures and still have some concerns about keeping your personal and business assets protected, we have listed a few alternatives for your consideration:
- Hold valuable assets in your spouses name
In most states, assets can be shielded from a spouse’s creditors, if they are placed in the name of the other spouse. With this type of asset protection in place, the separate property of a spouse cannot be touched. Please keep in mind, this strategy can backfire when it comes to the division of property during a divorce.
- Place them in an Asset Protection Trust (APT)
Although extremely complicated, an APT is probably one of the best moves you can make. This exists to specifically hold an individual’s assets with the purpose of shielding them from creditors. Furthermore, lawsuits and judgments will have little to no effect on your assets. There are two types of asset protection trust;
Revocable which comes with many benefits, as it can be changed and altered but this does not offer full protection.
Irrevocable which is the best choice for protecting your asset, however, it can never be changed and you will have little control over the trust assets.
- Create separate entities to hold your assets
Businesses often hold assets in separate companies. Doing this provides liability protection and tax concessions. The holding company is not responsible for any of the business activities, making the liability of the operation less likely, thereby protecting your assets. Often, the owners of the company holding the assets are not the same as the owners of the operational business. Assets are usually being held by a group of investors or an asset holding company. That being said, you can operate your separate entity in the same way. Putting real estate or other investment assets into a limited partnership (LP), you can essentially protect your assets to the same degree.
Attorney, Matthew Rossetti, specializes in start-up businesses and the formation of companies. He is the premier “Slicing Pie” expert in the midwest. Rossetti uses a custom dynamic business formation model to create a perfectly fair equity split, in the early stages of a company. Set up a 30-minute consultation for guidance.