Five Important Points for Asset Protection Planning in Business

by | Aug 13, 2014

Asset protection is a very important step in business planning. With a strategic businessand tax structure, a succession or exit plan, and a strong Asset Protection plan, a business has a solid chance of protecting its investments and profits from potential claims or creditors.

Here is what an asset protection plan for a business should include:

1. Proactive Planning: Asset Protection Planning is especially effective when it is implemented before a threat against a business’ assets arises. That is, a plan should be formulated before, not after something bad happens. A common way to insulate business assets is to break up the business into separate legal entities; effectively separating assets from liabilities.

2. Liability Insurance: Liability insurance offers protection for businesses. In the incidence of a claim against a business, the insurance company pays the claimant, thereby preventing out-of-pocket loss for the insured.

3. Separate Assets:  Separating business assets from personal assets protects them from ‘umbrella’ creditors. That is, if assets are separated, business assets will be protected against personal creditors and vice versa. However, if they are not separated, all assets are fair game for a creditor.

4. Form the Right Business Entity: As a general rule of thumb, an LLC (Limited Liability Company) offers a business better protection than a corporation. However, each state is different and businesses will benefit from learning the pros and cons of different business entities in the state where the business will be established.

5. Get and Maintain Good Counsel: The most important key to protecting your business is to get good advice. And the best advice is plan pro-actively, not reactively.

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