Your company is worthless without assets. Unfortunately, running a business can put those assets at risk. If you fall behind on your loan payments, the lenders may seek to take control of those assets. You may also have to give up some assets if you lose a lawsuit filed by an employee or customer.
Thankfully, there are ways to make sure you keep your assets. If you follow the below tips, you can protect your assets from claimants and creditors.
1. Purchase Insurance
Ideally, your commercial insurance policy will cover the costs of any liability claims made against your company. While you will have to pay a fee each month to maintain your insurance, this cost will pale in comparison to the amount of money or assets your uninsured company could lose in litigation.
Your policy should include basic liability and errors and omissions coverage. You may also want to purchase an umbrella policy that covers any areas your basic policy excluded.
2. Create Legal Entities
If you register your company as a sole proprietorship, then debtors or claimants could come after your personal assets. Incorporating your business limits this risk.
There are various corporations you can choose from. S and C corporations are similar entities that protect the principals’ assets. If a corporation is sued or defaults on debts, only the corporate assets can be seized.
S and C corporations have similar legal protections, but S corporations have specific requirements that C corporations do not have. Owners of S corporations also get to use pass-through taxation to prevent their profits from being taxed twice.
If you do not want to deal with the associated restrictions and formalities of S and C corporations, you could register your business as a limited liability corporation instead. Creating an LLC is a more flexible, cheaper and more convenient option that still offers the same asset protection.
3. Secure Private Information
Your business likely has lots of private data. Most of it is probably stored on your computer network. You may even still have some important papers tucked away in file cabinets.
If this data ends up in the wrong hands, your business could suffer. You thus need to make sure the information is secured. Paper documents should be locked away in a location with limited access. Virtual files, meanwhile, should be password protected and backed up in the cloud.
You may have to share some of this data with potential partners. Make sure they sign a confidentiality agreement in which they promise not to share any of your company’s private information with other businesses or individuals.
Finally, ask each of your employees to sign a non-disclosure agreement. This should prevent them from sharing secret records.
4. Apply for Copyrights, Patents or Trademarks
Business assets are not just tangible items. Your company may use special formulas and processes to make your products unique. You need to protect those assets so other companies cannot steal them.
The best way to do this is to apply for a patent. While the process can be expensive and time-consuming, it should prevent knockoffs. You should also trademark or copyright your brand’s name and symbols.
5. Create a Trust
A trust lets you transfer your assets to another person, who will then manage and hold those assets. A revocable trust lets you easily change the terms of the agreement or take back the assets within it. An irrevocable trust, however, is harder to change.
Assets within a trust are no longer under your control. A creditor thus cannot take them from you. Trusts also do not require public filings, so you can keep their existence more private. You will likely have to pay the trustee to manage the trust, however.
Asset-protection plans become more effective the longer they are in place. Even if you do not think you are at risk of losing your business assets, you should implement the above strategies as soon as possible.