How to Protect Your Personal Assets When Starting a Business
Starting a business is an exciting and rewarding venture, but it comes with risks—especially when it comes to your personal assets. Whether you're planning to launch a small retail store, a service-based business, or a tech startup, protecting your personal property, savings, and other assets should be a top priority.
Starting a business means stepping into unknown territory. There’s so much to consider, and the risk of personal financial loss can weigh heavily on many new entrepreneurs. However, with the right precautions, you don’t have to face these challenges alone.
At Prasse-Anderson Law Group, we help business owners in Tampa, Florida, as well as Pasco, Pinellas, and surrounding areas secure their personal assets and create a solid foundation for their companies. With proper planning, you can protect your financial future while also growing your business with confidence. Reach out to our business law attorney today to learn more.
Choose the Right Business Structure
One of the first decisions you’ll make as a business owner is selecting the appropriate business structure. The structure you choose will determine how your business is taxed, your personal liability, and how you protect your assets.
There are several types of business structures, each offering varying levels of protection for your personal assets:
Sole proprietorship: A sole proprietorship is the simplest business structure, but it offers no personal asset protection. If your business faces legal trouble or financial liabilities, your personal assets could be at risk.
Partnership: In a partnership, two or more individuals share ownership of the business. Like sole proprietorships, partnerships don’t offer protection from personal liability. Each partner’s assets can be at risk if the business encounters financial difficulties or legal issues.
Limited liability company (LLC): An LLC is a popular choice for small business owners. It protects personal assets by separating the business’s liabilities from the owner’s personal assets. In the event of a lawsuit or business debt, your personal property, such as your home and savings, is generally protected.
Corporation: A corporation offers the highest level of protection for personal assets. It is a separate legal entity, meaning the business and its owners are considered distinct. Corporations can also provide tax benefits, though they require more paperwork and compliance than other business structures.
The choice of business structure is one of the most crucial decisions you’ll make as a business owner. At Prasse-Anderson Law Group, our business law attorney works with entrepreneurs to help them choose the right structure that provides adequate protection for their personal assets.
Use Separate Business and Personal Finances
Once you’ve established the right legal structure for your business, it’s essential to separate your business and personal finances. This simple step helps maintain the legal protection your business structure provides and prevents your personal assets from being entangled with your business liabilities. Open a dedicated business bank account.
Using your personal bank account for business transactions can undermine the legal protection offered by your LLC or corporation. Keeping your business and personal finances separate makes it easier to manage your business finances and provides a clear distinction between your personal and business assets.
Additionally, apply for a business credit card and use it for business-related purchases only. Using personal credit cards for business expenses can expose your personal assets to risk. By keeping your credit separate, you’ll make sure that any business debts or financial issues don’t affect your personal credit or assets.
It’s also important to document all financial transactions clearly and accurately. Keep track of every business-related expense and income source. If the IRS or a court ever investigates your business, clear financial records can protect you and provide evidence that your personal and business assets remain separate.
Obtain Business Insurance
Business insurance is an essential tool for protecting your assets in the event of unexpected circumstances. While it can’t shield your personal assets from all types of business risks, it can help mitigate some of the financial burden that may arise from lawsuits, accidents, or property damage.
General liability insurance: General liability insurance covers common risks such as property damage, bodily injury, or personal injury claims. This type of insurance helps make sure that your business is covered if it’s sued for something like an accident at your business location.
Professional liability insurance: If your business involves providing services or advice, professional liability insurance (also known as errors and omissions insurance) protects you if a client sues for professional mistakes, negligence, or failure to deliver on promises.
Property insurance: Property insurance protects physical assets, such as your business’s office, equipment, or inventory. In the event of damage due to a fire, theft, or other disasters, property insurance can help replace or repair your damaged property.
Workers’ compensation insurance: If you hire employees, workers’ compensation insurance is often required by law. It covers medical expenses and lost wages if an employee is injured on the job. Having workers’ compensation insurance can protect your business from expensive lawsuits related to workplace injuries.
Having the proper insurance coverage in place can help protect your business and, by extension, your personal assets. At Prasse-Anderson Law Group, our business law attorney can advise you on which types of insurance your business may need, based on your industry and size.
Create Contracts and Legal Documents
Creating legally binding contracts is another critical step in protecting your personal assets. Contracts outline the terms of your business relationships and can prevent misunderstandings or disputes that could put your personal assets at risk.
Partnership agreements: If you have a business partner, it’s important to create a partnership agreement. This document clearly defines each partner’s responsibilities, ownership percentage, and how profits and losses will be divided. It also provides guidelines for resolving conflicts, exiting the partnership, or dissolving the business if necessary.
Client and supplier contracts: Contracts with clients and suppliers should also be clearly defined and documented. These agreements should specify the scope of work, payment terms, deadlines, and any penalties for non-compliance. Having these agreements in writing can protect you from lawsuits and misunderstandings that may otherwise affect your personal finances.
Operating agreements for LLCs: For LLCs, an operating agreement is a key document. It outlines how the LLC will be managed, the responsibilities of each member, and the procedures for distributing profits and handling disputes. This document can protect you and your members by clearly setting expectations and procedures.
At Prasse-Anderson Law Group, we help our clients draft clear, effective contracts and legal documents that minimize risk and protect both business and personal assets. Reach out to our experienced business law attorney today for help.
Plan for Business Succession
A well-thought-out business succession plan is essential to make sure that your business continues to thrive even if you can no longer manage it. This plan not only protects your personal assets but also secures the future of your business.
Identify successors: Designate one or more successors who can take over your role in the business if you become incapacitated or pass away. This could be a family member, business partner, or trusted employee.
Establish clear procedures: Create detailed procedures for how your business will be managed after your departure. This should include guidelines for decision-making, leadership transitions, and asset distribution. By setting expectations in advance, you can protect your business and your family from future conflicts.
Consider life insurance: Life insurance can provide financial support for your business and help pay off debts or cover expenses after your passing. This can prevent the business from having to liquidate assets to pay off debts, assuring the business’s continued operation.
A business succession plan can be one of the most important steps you take to protect your assets and your family’s financial future. At Prasse-Anderson Law Group, we can help you create a solid succession plan that aligns with your business goals.
Protect Your Assets With an Experienced Business Law Attorney
Starting a business is a journey that comes with both opportunities and risks. However, by taking the right steps to protect your personal assets, you can minimize those risks and set your business up for success.
Whether you’re deciding on the right business structure, setting up proper insurance, or drafting contracts, every action you take will impact the protection of your personal finances.
At Prasse-Anderson Law Group, we’re dedicated to helping entrepreneurs in Tampa, Pasco, Pinellas, and surrounding areas safeguard their personal assets and establish a secure business foundation. Reach out to us today to discuss how our business law attorney can assist you in protecting your personal assets and setting your business up for success.