It's Not Personal, It's Business. How to Separate Your Personal Assets from Your Businesses Liabilities.
It is a tragically common scenario: you have spent the last several years building your business from the ground up. It has spent the last several quarters surpassing projections, and you are optimistic about the future of your growing brand.
But then comes the lawsuit. A rival cloud company with bigger funds, better lawyers, accounting wizards, and almost unlimited resources is coming after you on a trademark violation. It is tenuous at best, and the definition of a frivolous lawsuit. But you don't have the ability to fight back as hard, and they win a settlement.
Not only do they strip away business assets, but they go after your personal ones. What could have been done to prevent this?
Protecting Your Personal Assets From Liability
There are a number of ways to keep your personal assets separate from your professional ones.
- Limited Liability Company (LLC) - Registering as an LLC is your easiest choice. Not only will it put a barrier between your personal assets and your business, but it offers flexible tax options when it comes time to report your companies quarterly earnings. If you own real estate, equipment, or products associated with your company, those can also be registered under their own LLC. This provides even greater security, as few suing agencies will wish to pay the legal fees for each separate lawsuit.
- Incorporation - Many people believe that incorporation will protect them from having their personal assets liquidated. In some cases it will, but there are exceptions. For example, a doctor who is sued for malpractice will not be covered under incorporation. It also may not protect you if a partner is sued and the judgement blankets others at your company.
- Becoming Bonded - Of course, your business and personal assets may be one and the same. This is the problem of many of the those in skilled trades face. In which case, it may be more beneficial to become bonded and insured, on top of any business registration decisions you choose to make. Considering a growing number of customers refuse to work with a business that isn't bonded and insured, there are enough pros to make this almost mandatory. Keep in mind that you need to have more than a minimum amount in your bank account in order to file for bonding. How much will depend on the chosen insurance company you go through.
Your business assets are always going to face a level of risk given the litigious nature of our society, but you don't have to live with your personal assets being threatened.