How Can I Protect My Personal Assets from Business Risks?

If you are a new small business owner or someone who is thinking about starting your own business, one area of knowledge that is likely more important than you realize is your understanding of how to protect your personal assets and finances from risks and creditors of your business. On one hand, doing nothing to protect yourself leaves your personal finances vulnerable. On the other, there are all kinds of high-priced “asset protection” plans out there that, in reality, offer little to no protection. Before you make a decision you might regret, let’s talk through the basic options you have to protect yourself when starting a small business.

Four Steps You Can Take to Protect Your Personal Assets as a Business Owner

There are four different steps you could take to protect your personal assets from your business. We will discuss each very briefly:

Step One: Keep Your Personal & Business Finances Separate

It’s not enough to just setup legal documentation for your entity. You need to actually keep your business and personal finances separate. Doing so will go a long way to protect your personal assets in a law suit because such personal assets and accounts are separate from the business. So, keep a separate checking account and use the name of the company on all payments and documentations. This includes maintaining your corporate books, governance records (minutes and resolutions) to maintain your status as a separate legal entity, which is the next step on the list.

Step Two: Establish Your Business as the Right Separate Legal Entity

You may have started out as a sole proprietorship because it was the easiest thing for you to do to get your business off the ground, but a sole proprietorship offers little legal protection. In such a business, your personal assets would all be exposed to your business liabilities including a potential lawsuit.

Your best options are to setup your business as a separate legal entity that is either a corporation or an LLC. Deciding which legal status offers you the best protection is a great conversation to have with your business attorney. And your CPA can advise you regarding the tax ramifications of your choice of entity.

Step Three: Document Your Business

One of the primary strategies creditors use to attack a business owner is to try to establish they either behaved fraudulently or negligently. In either case, having documented your key business decisions in the form of resolutions and documentation of decisions as well as keeping receipts and a separate accounting of business expenses can help protect your personal assets from such liabilities and claims in a court of law. This, again, is another topic you should discuss with your business attorney in order to ensure you are properly documenting everything your business needs documented.

Step Four: Get Insured

In most cases, companies offering asset protection without the need for insurance should be avoided. In essence, insurance is a key aspect of your business that you must budget for from the beginning. Why? Because it can take the target off of your back.  Proper insurance coverage can help establish a barrier between you and a claimant as well as provide for the defense of claims when someone comes after you for money.

That being said, not all insurance policies are created equal. This, like most things in this discussion, is something you ought to discuss with your business attorney and other advisors to ensure the policy you choose provides adequate coverage.

In Conclusion

Protecting your personal assets requires planning and knowledge. If you have any additional questions about how to better protect your personal assets or other related legal issues, call Stephen Rizzieri at 214.434.1017 or fill out the form on our law firm site today.


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Whether you are solving complex transactions, negotiating a contract, operating an on-going business, resolving a personal conflict, forming a corporate entity, or have questions about governance or need help resolving a business, family, or personal dispute without going to trial, you can expect responsive, cost efficient attention with personal service.

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