How to Protect Your Personal Assets in Business
Whether you’re considering starting a business or are already in the process of starting one, you’ll need to plan how you will protect your personal assets. Without the right protection, your personal assets could be taken in a lawsuit against your business. At Phelps LaClair, we want to help you keep all of the assets in your estate plan as safe as possible. Continue reading to learn more about protecting your personal assets and how to separate them from your business assets.
How to Protect Your Personal Assets When Starting a Business
Separate Your Business Assets
It’s never a good idea to mix your personal assets with your business assets. Always protect your personal assets by using separate business and personal bank accounts and credit cards. If you own several different businesses, it’s also important that you keep the assets of each business separate from the others.
Understanding how to separate your personal assets from your business is a crucial first step when starting a business. Using your personal credit card for business purchases can cost you certain tax deductions and credit card rewards. Similarly, using your business credit card for personal expenses can put your assets at risk. Setting up your business using the right structure can help separate your personal assets from your business assets.
Choose the Appropriate Business Structure
Choosing the right structure for your business will help protect your personal and business assets from creditors and lawsuits. Options for structuring your business include a limited liability corporation (LLC), a limited liability partnership (LLP), or a corporation. Structuring your business as an LLC, LLP, or corporation protects your personal assets in the event that your business loses a lawsuit.
When it comes to any type of assets, having the right insurance offers a lot of protection. There are many types of insurance that you may need, depending on the type of business you own. For instance, purchasing business liability insurance is a good way to protect your personal assets from a lawsuit against your business. Cyber insurance is necessary if your business handles sensitive data that hackers might breach. Errors and omissions insurance protects professionals such as doctors, lawyers, and dentists from malpractice lawsuits.
However, there are cases when a business structure cannot protect your assets. For example, if someone sues you personally and your business is a corporation, your business’s stock could be seized. While ownership interests in an LLC or LLP cannot be taken in a lawsuit, there are certain exceptions that may hold you personally responsible for your business’s debt.
Minimize Cash in Your Business
If your business loses a lawsuit, the winner will be able to go after any business cash assets. Limiting business cash to essential funds can help protect your financial assets. The best way to protect any cash you need for your operations is to put it into an LLC owned by yourself and not your business. Creditors will not be able to go after the funds in your LLC and you can easily transfer funds to your business as needed.
Business Asset Protection in Arizona
Once you’ve separated your personal assets from your business assets, make sure to protect them all with a well-designed estate plan. The estate planning attorneys at Phelps Law have over 40 years of experience in asset protection for Arizona residents. Whether you’re just starting a business or you’re an experienced entrepreneur, we would be happy to help you protect your business and personal assets. Call 480-892-2488 today to schedule a consultation.
Images used under creative commons license – commercial use (12/27/2021). Photo by Hunters Race on Unsplash