The most important strategy for protecting your personal and business assets is to structure your business as a separate legal entity. Whether you structure your business as a sole proprietorship, corporation or a Limited Liability Company (LLC) the legal entity will dictate everything from your risk and liability to how the IRS will handle your business taxes. A business law attorney can help you decide which entity will be most beneficial in order to protect you and your assets.
There is very limited personal asset protection built into the business entity of a sole proprietor or a partnership which means any legal results of a lawsuit against your business can also be applied to your personal assets. Most often, the best way to disentangle yourself from personal and business debts would be to form an LLC which can provide legal protection, enhanced credibility, and pass-through taxes.
In the eyes of the law, a legally established LLC becomes a separate entity keeping business assets separate from personal assets. In addition, the following must be considered:
- You must obtain the right insurance for your LLC
- It is important to keep business and personal assets separate and in separate accounts
Establishing the right business entity will likely provide you with the asset protection you need to safeguard business and personal assets. However, if your personal and business finances are entangled, those legal protections established for an LLC are limited.
“Piercing the corporate veil” is a common phrase used to expose the established corporate protections an entity sets up for the business owner against personal exposure for damages. If the proper protection is not in place, your personal finances are at risk for seizure in a judgment brought against your company.
Consequentially, if your business falls into bankruptcy and you have not established an LLC and separated your finances, your personal credit score will suffer along with your business credit score.
Even if your business is just starting out and not bringing in an income, it is essential to start off on the right foot and maintain separate personal and business finances.
A reputable business law attorney can help you establish the right business entity that will separate your business and personal assets that will help keep you protected.