By Brendan King
If you own a business, your estate plan should have an asset protection component since ownership of that business presents special creditor concerns for you. Sadly, many owners of thriving businesses fail to adequately protect their most important asset – the business itself!
Traditional business planning involves forming an entity (such as a corporation or LLC) to protect your personal assets from claims and liabilities associated with the business – what is commonly referred to as “inside liability”. However, business owners might be personally sued for their own misconduct or negligence, either associated with the business activity or unrelated (such as a car accident), leaving the business itself exposed to the owner’s “outside liabilities”.
For many business owners, like you, the business itself is their most valuable asset – both in terms of the monetary value of the business and in the fact that the business is the owner’s source of income and livelihood. Businesses are complex assets in the asset protection realm in that they are both a source of liability and an asset that needs to be protected in its own right.
One of the keys to protecting your business as an asset is utilizing the most protective form of business entity. For example, a properly-structured LLC (limited liability company) can offer more “outside liability” than a corporation. Additionally, how you hold your interest in the business can affect the business’s exposures to your own personal liabilities. For example, owning shares in certain types of trusts can offer more protection than holding the shares in solely in your name.
Another key to protecting a business in a multi-owner scenario is a buy-sell agreement between the owners. These agreements are typically used to address your respective rights and obligations in the event of your death, disability or voluntary exit from the business. In the asset protection context, they can protect the business from divorce or other outside creditors.
Consider the many threats that business owners face today – disgruntled or injured employee scenarios, consumers claiming injury from a product, or patients or clients alleging malpractice – which could all lead to claims against a business or its owners. It has never been more crucial for business owners to protect themselves and their business through comprehensive estate and asset protection planning.
If your business is not fully protected, don’t hesitate. Contact a knowledgeable attorney soon to ensure that your business entity is properly structured and that your estate plan combines with asset protection that adequately protects your business.