Asset Protection &
Oftentimes you get so caught up in the day-to-day operation of your business that is difficult to see the big picture. The legal, financial, and tax aspects of owning a business can be overwhelming for business owners.
One of the first decisions that a new business needs to consider is what type of entity it should be. The choices are typically a sole proprietorship, a partnership, a corporation, or a limited liability company.
The owner has no personal liability protection from claims against the business. All of the owner’s personal assets at risk.
Similar to a sole proprietorship, but with two or more people and a written agreement that detail the rights and responsibilities of the owners.
There is no personal liability protection for partners if there are claims that are brought against anyone in the partnership.
Limited Liability Companies
The limited liability company is a widely utilized asset protection solution. With this type of structure, the business is responsible for its own debts. Creditors that are owed money by the limited liability company cannot go after the personal property of the owner or owners.
Succession Planning (Buy-Sell)
Partners in small businesses can devise a succession strategy through the creation of a buy-sell agreement. This would involve the partners deciding on the value of a share in the business. They would take out insurance policies on one another equal to this amount. When one of the partners dies, the proceeds from the insurance policy would be used to purchase the share that was owned by the deceased from his or her family.
Corporations are separate legal entities, distinct from the owners. They can provide personal liability protection to their owners. S Corporations pass taxes to shareholders on their personal returns. C Corporations are taxed as a corporation.