If you are in business for yourself, you should place an emphasis on asset protection. There are relatively simple steps that you can take to erect a shield between your personal property and your business.
We will look at the most commonly utilized asset protection structures for small businesses here, and we will also share some information about personal asset protection.
Limited Liability Company (LLC)
A limited liability company can be the right choice for many small business owners. When you establish an LLC, you create clear separation between your business and your own property.
Generally speaking, if the business is sued by creditors or some other type of litigant, your personal property would be protected, but there are some exceptions.
If someone is injured due to your negligence while you are doing work for the limited liability company, your personal assets would not necessarily be protected. You would forfeit your protections if you fail to deposit taxes that you withheld from the wages of an employee.
Illegal, reckless, or fraudulent actions could pierce the protective veil, and you cannot use the limited liability company as an extension of your personal affairs.
On the other side of the equation, there is asset protection for the LLC owner if the company is sued, but it is not absolute. The court could issue a charging order to force the LLC to pay the litigant any money that is due to the LLC owner.
A court could issue an order that would dissolve an LLC, and the owner’s interest in the limited liability company could be foreclosed upon.
Family Limited Partnership (FLP)
Another structure that can be used is the family limited partnership. As the name would indicate, the participants must be members of the same family. If you establish an FLP, you would be the general partner, and you would add family members to join you as limited partners.
Assets that are held by a partnership would be shielded away from the personal assets that are owned by the individual partners. For example, let’s say that you own two shopping plazas, and you convey them into two separate family limited partnerships.
If someone files a personal injury lawsuit against the owner of one of the shopping centers, they would be suing the family limited partnership. The other investment property would be safe, and all of the partners’ personal property would be out of play.
Property that is held by a family partnership would be shielded if a partner is personally sued. In addition to the asset protection, gift and estate tax exposure can be mitigated through the proper utilization of a family limited partnership.
Self-Settled Asset Protection Trust
We practice in the state of Tennessee, and in our state, self-settled asset protection trusts are legal. This is a legal device that you can use to protect your personal assets from potential future creditors and other litigants seeking redress.
The asset protection is relatively strong, but there are some types of creditors that can reach assets in a self-settled asset protection trust. Resources in the trust would not be protected from family court obligations or tax responsibilities. A court order or a court judgment can potentially pry assets out of the trust.
Schedule a Consultation Today!
If you are ready to put an asset protection plan in place, we are here to help. You can schedule a consultation appointment at our Memphis, TN estate planning office right now if you give us a call at 901-763-2500 or 866-997-6325. There is also a contact form on this site you can use to send us a message.
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