Every business experiences financial difficulties from time to time – whether that comes in the form of sudden changes in the market or a lawsuit.
Unfortunately, a lot of small business owners and entrepreneurs don’t make the necessary moves to protect their personal assets from business losses until it’s already too late. Good asset protection strategies should be part of the plans during every new business formation.
Asset protection strategies that can help
General partnerships are often the vehicle of choice when entrepreneurs first start their businesses together, but they offer no protection against loss. Co-partners are equally liable for all the partnership’s debts, even if they were caused by one partner’s errors.
With that in mind, it’s wise to explore other options, such as:
- Limited partnerships: If your control over the business is minimal and you largely offer financial backing for a business you consider an investment, you may want to consider a limited partnership. That limits your liability for any business losses only to the assets or money you already have invested.
- Incorporation: Limited liability corporations, S corporations and C corporations all have their uses – and they all offer significant barriers against personal losses over business debts because these are generally all distinct legal entities that exist apart from the officers or shareholders in charge.
- Trusts: Trusts are often used by savvy business professionals to add an extra layer of protection against personal losses. Assets that are held in irrevocable trusts, for example, no longer belong to the trust’s grantor – which means they cannot be seized by creditors.
- Insurance strategies: Umbrella policies, professional liability coverage and property insurance are critical to good asset protection strategies, but many business owners don’t know how to tailor their coverage to their unique risks without help.
Asset protection strategies often get pushed to the side in the early stages of a business. If that happened with your business, there’s no time like the present to revisit the issue.
