Don’t want to go bankrupt?
Thousands of businesses each year go broke when they don’t have the right legal protections in place. In fact…
A whopping 43% of small businesses are threatened with a lawsuit each year. Which means almost half of all businesses are under constant threat.
Luckily…
It’s actually really easy to protect business assets if you know what you’re doing. It just takes a little knowledge and some careful planning.
What Business Asset Protection Really Is?
Business asset protection is simply the practice of legally protecting company property from lawsuits, creditors, and other losses.
This means using the right legal structures and strategies to ensure that company equipment, inventory, intellectual property, real estate, and cash reserves are safeguarded as much as possible.
Business asset protection also encompasses physical security measures to protect the business’s premises and equipment from theft and damage.
Business owners invest in security shutters from Pressford Shutters & Shopfronts Ltd to keep their buildings safe, as well as security cameras, alarm systems, and physical locks to prevent break-ins.
The reason this matters is…
If your business is ever hit with a lawsuit or creditor claim and you haven’t taken steps to protect your assets, you could lose everything. The legal structures you put in place determine how much of your business remains protected when things go wrong.
Business asset protection is really just like building a fortress around your business. The better your protections, the safer your business assets are.
Why Legal Structures Are So Important?
Legal structures are the foundation of any good asset protection strategy.
Business owners build legal structures that create distance between themselves and their assets. If these legal structures are set up correctly, it makes it next to impossible for creditors or litigants to gain access to the assets that have been put inside these legal structures.
It’s also not even just a matter of whether you’ll be sued. It’s a matter of when.
Statistics show that 90% of businesses face a lawsuit at some point in their lifespans. That’s not “if” but “when.” The right legal structures mean the difference between losing everything or losing the lawsuit but keeping your business intact.
Business owners who understand this do not gamble with their legal structure. It’s a no-brainer.
The Basics of Legal Structures for Protection
The legal structure of a business has a bigger impact on asset protection than most people realise.
Business owners who incorporate as Limited Liability Companies (LLCs) gain significant legal protection because LLCs create a separation between the owner’s personal assets and business assets.
If the LLC is sued, the owner’s personal property like their home, savings accounts, and other investments are generally not at risk.
Business owners can also choose to form a Corporation as their legal structure. Corporations are even more protective in some ways because they create a more formal separation between the business and its owners.
Business assets, ownership shares, and legal liability are all legally separate from the individual owners.
One thing business owners often don’t realise is…
These protections can be lost if the business owner commingles personal and business finances. This term, “piercing the corporate veil”, means that a business owner doesn’t properly maintain the separation between themselves and their business and creditors can go after personal assets.
Physical security is also an important part of business asset protection.
Security shutters, doors, and windows are one part of this. Businesses also invest in alarm systems and monitoring services, as well as CCTV at key entry points, to prevent theft and break-ins.
Insurance: Transferring Risk the Easy Way
The fundamental concept behind insurance is that you pay someone else to take on your risk.
Businesses purchase general liability insurance, professional liability insurance, commercial property insurance, and other coverages to protect themselves against accidents, injuries, and lawsuits.
The most important thing to understand about insurance is…
It shifts the financial burden of lawsuits and accidents to an insurance company. If a lawsuit or accident happens, you and your business don’t have to pay legal fees and damages out of pocket because the insurer takes care of it.
There’s also something called an umbrella policy that acts as an extra layer of liability coverage. It kicks in after other policies have been maxed out. This can be especially important for businesses in high-risk industries.
The key is making sure the coverage matches the actual risks the business faces. Over-insuring is a waste of money. Under-insuring leaves a business vulnerable.
Personal vs. Business Asset Separation
This might be the most important thing in business asset protection.
Courts really closely examine the finances of business owners. If business and personal funds are mixed together, judges can rule that there’s no real separation between the owner and the business.
If the court pierces the corporate veil (explained above), business creditors can go after personal assets like homes and savings accounts.
To keep things properly separate:
- Use separate business bank accounts
- Never pay personal expenses from business accounts
- Maintain immaculate financial records
- Conduct regular audits
Business owners often accidentally undermine their own legal structures by neglecting these simple principles. The discipline it takes is minimal compared to the protection it provides.
Layering Multiple Protections
The smartest approach is to use several strategies together. No protection method is foolproof. LLCs can be pierced. Insurance has limits. Security can be breached. But multiple layers all working together create a very strong overall protection.
The most secure business might be one that is set up as an LLC, with all of the recommended security measures in place as well as properly maintained insurance and clearly separated finances.
This isn’t about being paranoid. It’s about being smart.
Wrapping Up
Protecting business assets is no longer optional.
The legal structures are available today to wrap serious levels of protection around any business. From the corporate structure to physical security and proper insurance coverage, every decision is important.
One more time:
- Choose the right legal structure to separate personal and business liability
- Invest in physical security for the business’s premises and inventory
- Purchase the right insurance that matches actual business risks
- Keep personal and business assets separate
- Layer multiple protection methods for maximum security
Business owners who do all this are better able to sleep at night. They know that no matter what challenges the business faces, their hard work and assets will be protected.
It’s important to build these protections before you need them. Waiting until a lawsuit is already in process is far too late.
So start today. Thank yourself later.
