When it comes to entrepreneurship, risk is unavoidable—but must that risk affect your own personal wealth? It does not need to be that way, yet the number of business owners who fail to set in place the appropriate safeguards to protect themselves from business risk is staggering. This is not done out of some misplaced desire for a competitive advantage, but simple ignorance of the strategies available to them.
Even those in business for decades are susceptible to such pitfalls—often, those who have avoided one or two missteps along the way have simply lucked out, all the while overlooking how close they came to disaster. Do you have the correct asset protection strategies in place to establish a clear boundary between the risks taken in your business and your personal wealth?
What you can do
Beyond mere book learning, an experienced business law attorney benefits from exposure to the trials and tribulations of dozens of businesses over the course of their career. Even better, of course, is a business attorney who also an entrepreneur, and has personally experienced what business owners go through. Whether brought in as a precautionary measure or for post hoc damage control, a good business law attorney retains more lessons on hedging against risk than you will (or would ever want to) acquire over the lifetime of your business through first-hand experience.
The following lessons on limiting your business liabilities are tried and true:
Get your business entity right
Different business entities offer different trade-offs. If your business will face a great deal of risk on the road ahead, consider taking advantage of the protections offered by a corporation or a Limited Liability Company (LLC) rather than a sole proprietorship or a partnership.
Separate your finances
The protections of the above are worth nothing if you intermingle your finances. Whether using business money for personal uses or personal money for business, you risk invalidating your asset protection on a far broader scale. Similarly, all business documents—contracts, property titles, etc.—must bear the name of your business instead of your own name.
Follow the rules
Shortcuts may be tempting, but there is very good reason to stick to the beaten path. What may appear easier in the short term can later be turned against you in suits over negligence or fraud. And, part of following the rules is keeping your corporate records up to date (not just your financial records).
Get fully insured
Much like you hold different types of personal insurance for your home and your car, the insurance your business needs is never exactly “one-size fits all”. For instance, you may have your business insured for a customer’s personal injury, but what about the liability from a data breach? A careful analysis of what you need and at what coverage amount will go a long way to place your personal wealth outside the bounds of a business lawsuit. Another layer of protection is to have an umbrella policy that you hold personally; they tend to be very inexpensive and well worth the investment.
Having a business attorney that understands the individual needs and unique circumstances of your company is key to helping your business thrive and prosper. If you are interested in learning more about legal protection strategies for your business and how we work with you as a partner in protecting your company, call us today at 612-206-3701 or via our online contact form to schedule a small business consultation session.
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