Protect you Assets as a Business Owner

Asset protection for the business owner
by David Rando



As a business owner, you probably realize that operating and owning a business can be fraught with pitfalls and risks. Turning a profit isn't enough; you must also protect your business from claims and lawsuits. Debts and mortgage obligations to third parties and vendors, claims for damages caused by your employees, product or professional liability, and consumer-protection issues are just some of the risks you must deal with. If handled improperly, these risks could result in the loss of both business and personal assets. Knowing what risks you face and how to minimize or avoid them gives you the chance to run your business successfully.

Why Is Asset Protection Important?

The goal of a comprehensive asset-protection plan is to prevent or significantly reduce risk by insulating your business and personal assets from the claims of creditors. Unfortunately, most small-business owners are unaware of all the potential risks that can harm their business and the options available to protect themselves. An asset-protection plan employs legal strategies, put in place before a lawsuit or claim arises, that can deter a potential claimant or help prevent the seizure of your assets after a judgment. If you haven't already put your asset-protection plan in place, don't wait. The longer the plan has been in existence, the stronger it likely will be. (Read "Will Insurance Keep Your Business Safe?" to learn how to guard against the loss of skilled workers.)

Strategies used in asset-protection planning include separate legal structures or arrangements, such as corporations, partnerships and trusts. The structures that will work best for you depend, in large part, on the kinds of assets you own and the types of creditors most likely to pursue claims against you.

Claim Types
The following are two general types of claims that can be made against you. For asset protection, it's important to know the difference.

Internal claims arise from creditors whose remedy is limited to assets of a particular entity, such as a corporation. For example, if you have a corporation that owns a piece of real estate and someone slips and falls on the property owned by the corporation, the injured party is limited to pursuing the corporation's assets (i.e., the real estate). This assumes you did not cause the injury.
External claims are not limited to the assets of the entity and can extend to your personal assets. For instance, if the same corporation owned a truck that you negligently drove into a crowd of pedestrians, the injured could not only sue the corporation but also you, and satisfy any judgment from corporate assets as well as your personal assets.
Knowing the type of claims that can be made will allow you to better plan and protect your property from seizure and your wages from garnishment. It is also important to understand which types of assets are more susceptible to claims.

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