Strategies to Maximize Safety of Personal Assets
You’ve worked hard to build your business and provide for your loved ones. Unfortunately, it’s a litigious world and you’re always at risk of lawsuits. You want to take all the right steps to ensure that liabilities relating to your business do not have a negative impact on your personal wealth. One of the best ways to do that is through the selection of your business form. A limited liability company (LLC) can protect your personal net worth while giving you the flexibility to build your business. You need to be careful, though, that you take the right steps to maximize that protection. Here are some things you should do:
- Make certain you run your limited liability as a totally independent legal entity—Especially when your company is a sole proprietorship or wholly family owned and operated, there can be a tendency to run it as an extension of your day-to-day family affairs. You may withdraw cash from the business for personal use or pay bills of the business with personal funds. Unfortunately, if it appears that there’s no distinct legal separation between you and the business, a creditor may seek to have you personally liable under the “alter ego” theory, arguing that the LLC form is a sham.
- Make certain you have adequate insurance to cover potential liabilities—Work with an insurance professional to obtain general liability or other necessary policies of insurance to pay the costs of litigation or other concerns.
- Choose corporate status for your limited liability company—The Internal Revenue Service allows an LLC to be taxed as a corporation or as a sole proprietorship. If you make that selection, you can shield personal property and wealth from company debt and won’t be personally liable for any tax obligations of the LLC
- Consider placing personal net worth into a trust—A trust is a separate legal entity that can own property. Even if your business creditors can successfully argue that you are the alter ego of the business, you can still protect personal assets if they’re owned by a trust (and not by you).
Contact MCIS Law
At MCIS Law, PLLC, in Stafford, we provide comprehensive counsel to businesses in southeast Texas. For a confidential consultation with an experienced and knowledgeable lawyer, email us or call our office at (346) 297-0121. We accept all major credit cards.