What is Asset Protection?

In general, asset protection is typically understood to mean, "setting up entities to limit your loss of assets if you were to be sued". In other words, most people understand that when you enter into business, the business has a high probability over time of being sued (whether or not your business did anything wrong or not). With this in mind, many are motivated to operate under an entity that will limit their exposure in case such an event may occur (they would operate under an LLC or Corporation for example vs operating as a sole proprietorship).

Asset Protection is a popular field that has been created that really should mean something different. The simple reason is that if you are in a court situation, your response to the judge for your motivation to set up several entities to structure your business, typically, is, "I wanted to protect my assets". The judge may not look favorably upon your motivation to form these entities. The plaintiff’s attorney may twist this to mean, you knew that some day, you were going to take advantage of clients like mine and you knew you could limit my client’s ability to recover what is due her/him with this structure. In other words, you planned to ‘cheat’ my client (our company is not a law firm, and we recommend you ask your attorney or an attorney who has experience in cases like this, is this is a fair possibility).

Let’s make an one point clear; we are assuming you have the full intention of going into business to provide an excellent product and service and to treat people fairly. If this is not the case, you are on the wrong web site and DO NOT even call our company, period.

For everyone else, who is looking to add value and make a difference, things can unfortunately happen for which you may not have planned. It could be some thing as simple as not understanding rules about handling employees and you may find yourself in a legal challenge. Not knowing the "rules of the game" is not a good defense.

Based upon this, some of the simple things, by which to limit your liability or risk in business, can be the following items you may have overlooked;

1. A complete business plan to determine your ability as a company to pay back any loans you may need to start the company. This would be complete if it included a budget in order to determine how much your business can afford to invest in equipment. A meeting with your CPA and attorney may be recommended.
2. A guideline for hiring employees. The interview process can be a simple area that is filled with questions you can and cannot ask.
3. A complete employee manual from day one for every employee with regard to the rules of your office. This should be checked with both the local labor board and check with the Federal rules. It is always recommended to have a qualified person review your employee handbook.
4. The ability to read your contracts for items like your alarm service, for example. Many contracts have fine print that says you must cancel the service in writing 30 days prior to your contract expiring. If you do it afterwards, you may find your self stuck with another year’s bill because you were not organized. These items, many times, end up in collections because you may have thought it was handled.
5. Your business insurance policy. Find out what your insurance company will do if you have a claim under your insurance policy. What will happen in order for them not to renew your business insurance? What level of claim would cause you to be considered a "loss" and therefore they may not renew your policy. Now, your ability to find new insurance may be very expensive or difficult. Insurance is a must; the challenge is what will happen to cause it to be cancelled with you left on your own?
6. There should be clearly worded disclaimers and service agreements. Odds are you will not make every customer in life happy, even if you have the best of intentions.

These are just a couple of basic areas that could cause you liability. By plugging up these holes in your business, you will have already accomplished an important part in lowering your risk.

The next level may involve items like homesteading your house. Most states have a certain equity level that can be protected from creditors. Next, you may consider operating under an entity that has some tax advantages like an S or C corporation. Of course, there are many other things that can be done to lower your exposure to risk in business.

Finally, the reality is that your business may get sued at some point. Just as the reality is that you will die at some point. You may decide to make different choices during your life to enjoy a longer, healthier life, and you may also decide to make some different business choices along the way to enjoy a longer, more prosperous business. We hope you choose to do both.

We feel the first step in your new business is a critical one. Which entity is best for you? Please call us at (888) 466-7566, and ask for a free consultation with a Senior Consultant.

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