Protecting Your Assets

Wouldn't every entrepreneur love to have a small business guardian angel? Not an advisor, mind you, because there is plenty of advice available these days for small business owners. But an honest-to-goodness guardian angel, surfacing only at your most dire moments, salvaging a situation from total ruin.

After all, running a small business is an incredibly risky, and often difficult, venture. Starting, planning, financing and marketing a small business only gets you off the ground--if you can make it that far. Day-to-day duties require the sound management of office and equipment, employees and employment law, business finances and government taxation. Then there is that little matter of actually providing products and services, while balancing these duties.

Of course, the bottom line to all of this is turning a profit: one large enough to justify all these expenditures of time, money and effort. Success is the eagerly anticipated reward for taking the plunge and exposing yourself to all of the various risks at all of the various stages of small business formation and growth.

Unfortunately, we cannot offer you the services of the aforementioned guardian angel to protect all that you have built up in your small business. But we can point you in the direction of the next best thing--a comprehensive asset protection plan.

Asset protection planning is the true "level playing field" on which all businesses conduct economic transactions. Large businesses know this, and they have teams of lawyers and accountants constantly looking out for their best interests, according to the rules of play.

The problem is, most small businesses don't, and won't ever, have these kinds of resources available to them. Moreover, many are unaware of the legal protections granted to all businesses.

This puts small business owners at a distinct, and unnecessary, disadvantage in the world of commerce, leaving them exposed to risks that may be completely out of their control.

Asset Protection Planning for Your Small Business

However, it needn't be this way. To this end, Nicholas C. Misenti and the editors of the Business Owner's Toolkit® have compiled a set of strategies and helpful advice that, once executed well in advance of any trouble, would help preclude the need for a guardian angel to bail you out of any worst-case scenario.

In addition, these asset protection planning strategies are equally available to debtors and creditors alike, and wise entrepreneurs should engage in these strategies, no matter which side of the relationship they are on. But for the purposes of explanation, the discussion that follows is told from the debtor's point-of-view.

Armed with this knowledge, small businesses should truly be able to compete on that same "level playing field" with their more well-heeled and more powerful counterparts, resulting in a better chance of success and a lesser chance of financial ruin, if things go terribly wrong.

Our discussion is broken down into three sections:

• Are Your Assets at Risk? sets the stage for the business strategies presented in the next sections by helping the individual understand how a debtor can lose assets to a creditor. Personal strategies here focus on effective exemption planning of your assets and an overview of how these plans would work in a bankruptcy situation. Moreover, guidelines are offered for legally transferring and protecting assets, as well as avoiding creditors' challenges to these transfers. Finally, the complicated rules regarding asset protection trusts are explored in-depth.
• Limiting Liability in Your Business Structure explores strategies when initially forming, structuring and funding your business operations. Choosing the type of entity, where to form it, and how to fund it or get financing can have a tremendous impact on how secure your personal and business assets actually are. In addition, minimizing income and estate taxes is a form of asset protection (here it's the government, and not some creditor, going after your wealth), and proper business formation and structuring can go a long way toward reaching that goal. Of course, if your business is already established, nothing prevents you from going back and applying these strategies going forward.
• Avoiding Day-to-Day Liability Risks focuses on the many risks inherent in operating a business and how to avoid (or at least minimize) your exposure to these risks. Primarily, these strategies urge business owners to avoid leaving vulnerable, unprotected assets within the business entity that could later be seized after defaulting on a contract, committing a tort (negligent act) or having the veil of limited liability pierced by a court. In addition, strategies are given for dealing with that inevitable day in court, something most successful business owners will be unlikely to avoid because of the nature of business dealings and the rules of our current system of justice. Finally, insurance is discussed as your last line of defense.

To be sure, comprehensive asset protection planning is a very complex topic that touches on almost every aspect of business ownership. Your individual plan will depend on your comfort level and specific goals for your business. But the goal here is legal protection of your hard-earned assets. Every reputable, honest business is allowed these protections.

Stretching these goals to the purposeful deceit of other businesses or individuals is not asset protection planning--it is fraud. Doing so may put you on another "level playing field," only this one may be surrounded by metal bars and fences.

So before you execute any asset protection plans, be sure to consult your attorney or financial advisor. By doing the legwork now, you'll make their job easier and your bill for services smaller.