Most people start their businesses with high hopes of success. But many don’t realize that to protect their assets; they need to take specific steps early in their business life. Without these steps, your personal assets can get in danger if your business faces losses because the collectors will start chasing your personal assets for repayment. Here are some tips to help you get started.
Merge Your Personal Assets to One Entity
Another way to protect your personal assets is to consolidate them into one entity, such as a trust. This can be a good option if you have multiple properties or other assets. By consolidating your assets, you make it more difficult for creditors to go after them. You can also limit how much your assets can be used to pay off debts.
If you have smaller personal assets you don’t use, like cars, you can sell them off and use the money to buy a single asset like property instead. However, cars cannot make up for the amount of a house. Hence, it is advised to take a mortgage in such a case. Find a reliable mortgage broker in your locality and apply for the loan. A mortgage can help get you the finances needed to buy the real estate property. This will help you merge your smaller assets into a single large asset that won’t be easily mixed with business assets.
Keep Personal and Business Finances Separate
When it comes to personal finance, there’s one golden rule: never mix business with pleasure. The same principle applies to business finances. Keeping your personal and business finances separate is the best way to protect your assets from your company.
There are a few key reasons for this:
- Separating your finances makes tracking expenses and income for tax purposes easier.
- It protects your assets if your business is sued. If your business assets are commingled with your personal assets, they may be at risk in a lawsuit.
- Separating your finances gives you a clear picture of the financial health of your business.
Knowing where your money is going and coming from can make better decisions about how to grow your business.
Limit Your Personal Guarantees
A personal guarantee is a promise to personally repay a debt if your business can’t. For example, if you’re taking out a loan to start your business, the lender may require you to sign a personal guarantee. If you can’t repay the loan, the lender can come after your personal assets. For example, he or she may try to take over your house or car.
While it may be tempting to just sign a personal guarantee and not think about it, this can be a risky move. If your business fails and you can’t repay the loan, you could end up losing your home or other personal assets. So, it’s important to carefully consider any personal guarantees you may be asked to sign.
Avoid Hidden Liabilities
When you set up a business, it’s important to avoid hidden liabilities that could jeopardize your personal assets. One way to do this is to choose the right business structure. For example, if you set up a sole proprietorship, you’ll be personally responsible for all debts and liabilities incurred by the business.
On the other hand, if you set up a corporation or limited liability company (LLC), you’ll be shielded from personal liability for business debts and liabilities. Another way to protect your personal assets is to keep them separate from your business assets. For example, don’t commingle personal and business funds in a joint checking account. And if you own property used by your business, make sure it’s titled in your name as an individual, not in the name of your business.
Use Employment Contracts
An employment contract is a legally binding agreement between an employer and an employee. The contract can outline the duties and responsibilities of the employee and the terms of their employment. It can also specify what happens if the employee is terminated or leaves the company.
A well-drafted employment contract can help to let your personal liability in the business is sued. In addition, it can provide clarity and certainty for both you and your employees.
There are a few key ways to protect your personal assets from your business: choose the right business structure, keep personal and business assets separate, use employment contracts, and be cautious with partnerships. By taking these precautions, you can help safeguard your personal assets from creditors of your business. However, it’s important to consult with an experienced attorney to ensure that you take the appropriate measures to protect your interests.