How to Protect Your Assets in Business
Asset protection insurance is designed to protect business owners and their investments if they become involved in litigation. This type of business insurance is designed to protect against lawsuits, legal actions, and financial losses from lawsuits.
Business owners may purchase business liability insurance, personal liability insurance, and product liability insurance in order to protect their assets from litigation.
Business owners often have higher exposure through their business than they do personally. This is because a business’s operations are typically conducted through the proprietor or their business, whereas their personal assets are typically not involved in a business.
This insurance will cover your assets such as your personal property, stock, business in case you need to sue another person or entity due to one of the following:
- Breach of contract
- Wrongful termination
- Labor law violations
- Fraudulent conversion (of property)
- Lien proceedings
- Economic torts (e.g. theft, invasion of privacy)
Why is Asset Protection Important?
Asset protection is important because it protects people from losing anything of value to wrongdoing or mismanagement.
Assets can be taken by creditors, lawsuits, and employees in the form of wages or fraud. Asset protection can help you reduce your risk of being forced to pay high liabilities and judgments against you so you won’t lose your most valuable assets like your home and business.
While it is always wise to protect your assets, some businesses are more prone to lawsuits than others.
For example, one of the reasons why doctors need asset protection is because they are often targeted for liability lawsuits due to their specialized knowledge and skills utilized in the medical field.
Another example may be a freight from who needs to employ a truck accident lawyer in Miami such as Schrier Law Group to help deal with issues arising from a road traffic collision.
Ways to Protect Your Assets
In general, there are 3 main ways to protect your assets:
- Insurance for Assets – An insurance policy for your business is always a good idea to protect you from lawsuits and other liabilities.
- Company Structure – Structuring your company as a not-for-profit (like a 501c3) or as an LLC can help to minimize the liability of the business owner.
- Contracts – A well-written contract with all parties involved will help to prevent fraudulent actions and breaches of contracts by employees.
Obligors provide some form of consideration; in return, obligees promise to provide some benefit, like a benefit in kind or other obligation.
Types of Obligations
Overdraft protection is a form of asset protection, but not all forms of asset protection are overdraft protection.
Overdraft protection does not protect against the loss of property, only against the loss of funds.
Simply put, overdraft protection involves a bank that allows an account to go into the negative in order to be covered by the bank.
Banks usually charge an additional fee for this service and often require monthly income amounts over a certain threshold. Though legitimate, there are ethical concerns regarding this form of asset limitation.
The highest risk to banks is when they make loans and then expect repayment in excess of what they initially advanced.
Protecting Yourself and Your Business
If you are considering some kind of asset protection for your business, there are some questions you should ask yourself:
- What assets should be protected?
- How much protection is enough?
- Who will provide the asset protection?
- Is asset protection necessary for your business model, or is the cost too great to be worthwhile?
It is always best to consult with a lawyer who can advise you on your particular situation.
Personal Asset Protection
One of the most popular forms of asset protection is to take out a life insurance policy on yourself.
This type of insurance protects property located in the United States that you own, it provides partial coverage for your personal debts and can reduce your taxable estate at death.
The main risks with life insurance are that you may be classified as an equity owner in a short position, you will get no benefit if the owner is able to maintain a minimum standard of living after their death and you will get less than what you paid for the policy.
Assets held outside of the United States are generally not protected by life insurance policies since there is no one to collect on them if they are lost or destroyed.
A limited partnership is a method of asset protection that uses one or more general partners and one or more limited partners.
So instead of each individual partner having to protect his personal assets, he can combine his assets with the assets of others to increase coverage.
Limited partnerships are somewhat obscure and not many banks lend against them.
What makes this type of form of asset protection particularly attractive is that it allows for the personal assets of each partner to be protected without affecting the value of his personal assets.
Although limited partnerships are not quite as popular as they once were, they are still available, particularly in areas where other forms of asset protection have become less popular.