Such risks could extend to your personal assets leading to the substantial loss of current income and future wealth. Given the litigious nature of modern society, asset protection isn’t just a nice add-on. It's a necessity if you're to preserve the integrity of your business and legally insulate your assets.
As an entrepreneur operating in Florida, there are several plans available to you that you can use to protect your assets and any accounts you own. But, more importantly, asset protection starts with how you structure your business.
Florida Business Entities and Asset Protection
Creating a separate legal entity is one best asset protection strategies at your disposal. Most small business owners conduct their business under sole proprietorship, a corporation, or limited liability company (LLC). Generally speaking, if the goal is to protect your personal assets from business liabilities, it makes little difference which of these entities you choose to operate your business.
However, there are no set protections for personal assets when operating under a sole proprietorship or partnership. In other words, the owner has unlimited liability for the debts incurred by the business.
Most small and medium companies structure their business as LLCs because of their asset protection advantages. An LLC limits the liability of the members, which means only business assets are exposed to liability. Plus, provisions in Florida law prevent creditors from seizing business assets to fulfill judgment against one member.
It’s important to mention that there are no exemptions attributable to business entities under Florida law, which means all business assets are at risk in case of a creditor claim or lawsuit. A judgment against the business not only threatens the assets but also jeopardizes the business operations and can cut off cash flow to the individual owners.
Fortunately, there are tools designed to shelter a business's assets, but they must be implemented early on.
Protecting Your Business Assets
Asset protection involves a great deal of risk mitigation, which means you must first understand the risks facing your business. For this reason, it's crucial to work with an experienced asset protection attorney to map out potential threats and vulnerabilities against each asset.
Here are a few strategies you can use to protect your business assets.
1. Keep multiple business ventures separate
As a business owner, you wear many different hats and might even be running a variety of businesses. If this is your case, setting up different entities for each venture ensures that they incur separate debts and liabilities. Failure to do so will expose all your businesses to creditor claims even if only one business is found liable. On that note, make sure to separate each entity’s banking, accounting, and record-keeping.
2. Purchase insurance for additional protection
Accidents are sometimes inevitable. Having insurance helps protect your business and its assets since you won't have to cover the losses directly. There are various types of insurance available to you; the right ones will depend on your industry, the size of your workforce, and your unique preferences. Professional insurance policies include:
- Malpractice insurance (for doctors and attorneys)
- Personal disability income insurance
- Business worker’s compensation insurance
- Leasing insurance
- Business auto insurance
- Business interruption insurance
Review your policies at least once a year to ensure that the coverage is enough to cover the value of your assets as your business grows.
3. Transfer some of your assets to a trust
For business owners, a trust is a legal tool that allows a third party to hold business assets on your behalf. As a result of relinquishing ownership of the business assets, they are not subject to the risk of loss. It’s crucial to set up a trust as early as possible because if one is created after litigation arises, it will most likely be viewed as a tool of liability avoidance by a court.
Moreover, different types of trusts are available, each with its own set of pros and cons. An irrevocable trust provides protection against personal liability for business debts, while a revocable living trust can help shield assets that pass to your beneficiaries in the event of your death.
Consult a Florida Asset Protection Specialist
Business asset protection is considerably more intricate and challenging than personal asset protection. It’s a process that must be carried out early enough to avoid accusations of fraudulent transfer and carefully enough to cover every aspect of the business and the assets therein.
Also, business asset protection could have impacts on tax planning. A skilled asset protection lawyer will evaluate your assets and identify the litigation risks facing your business to create a comprehensive plan tailored to your company's unique needs.