Entrepreneurs are an incredible asset to our economy. Their businesses drive local employment and provide income to our Region’s families. However, the reality of doing business is that as an owner you are exposed to liability.
Without proper legal protections, you may be unknowingly exposing both your business and your personal assets. There are many common situations that put your assets at risk like having many assets tied to one business or an agreement gone poorly.
There are a number of strategies that business owners can take with the help of a Business lawyer to ensure and improve asset protection. We discuss some of the most common asset protection strategies below.
Common Asset Protection Strategies
Establish a holding company or companies
If an operating company is accumulating real estate, intellectual capital, cash or other assets, all are exposed to the business's creditors.
To protect some of these assets, business owners can establish a holding company. A holding company not only provides personal and business asset protection but, also provides a strong tax saving strategy. Holding companies own shares of a business corporation, often profits are paid out to a holding company from the operating business as dividends. The holiday company can use the cash accumulated to purchase real estate, lend capital and hold other assets like intellectual property.
Divert your assets into trusts
Trusts allow a company to transfer legal ownership of a business's assets to a trustee. The trustee is responsible for maintaining control of the assets on behalf of the Trusts beneficiaries. Trusts are a common choice for businesses that are family run, as the family members can be the beneficiaries of a trust. Dividends of the trust can be paid out the beneficiaries on a discretionary basis.
With any trust agreement, it must be drafted properly, otherwise the beneficiaries may be exposed to creditors.
Trusts and holding companies can be used together to for further tax savings and to protect your assets. For more information on improving your corporate structure to protect your business's assets, connect with a member of our Business Law team below.