When you decide to start your own business and work for yourself, you are going to have a lot on your plate. It is a big risk that comes with an even bigger potential upside, and it is satisfying to make your own decisions and do things your way.
Since you are focusing on all of the things that you must do to get on the road to profitability, you may overlook an important detail. If you conduct business as a sole proprietor, your personal assets are not protected from business creditors and others that may file lawsuits.
You may feel as though you are in a low-risk category, but unexpected circumstances can arise, and you can find yourself in a very difficult position.
Limited Liability Company for Small Business Asset Protection
One relatively simple way to protect your assets as a business owner is to establish a limited liability company (LLC). Some people like the sole proprietorship because of the pass-through taxation. You can claim profits and losses on your personal income tax returns.
When you have a limited liability company, you still have pass-through taxation, so your accounting is streamlined. The difference is the fact that your personal assets are protected if your business is sued under most circumstances.
There is an exception if you directly injure someone while you are in the process of doing your job. And of course, if you personally guarantee a loan that is going to be used for business purposes, you would be on the hook even if you have a limited liability company.
The asset protection is a two-way street. If you are sued as an individual, the limited liability company would be protected. However, if a charging order is issued by a court, distributions that are due to you from the limited liability company could be attached.
You should be aware of the concept of fraudulent conveyances as they apply to limited liability companies. An LLC cannot be created to protect assets after you already know that you are going to be the target of a legal action.
Family Limited Partnership
The family limited partnership (FLP) is another commonly used asset protection structure. If you establish an FLP, you would be the general partner, and this would give you absolute decision-making authority.
Family members that you bring into the partnership would be limited partners with no ability to make decisions on behalf of the partnership. The personal property of each partner would be protected if the partnership is sued.
You could potentially establish multiple family limited partnerships to hold different assets to establish multiple layers of asset protection. In addition to the protection, a family limited partnership can facilitate asset transfers between partners at transfer tax discounts.
Attend a Free Webinar!
We are glad you found your way to our site, because there is some great information that you can access to get a better understanding of the estate planning process. Plus, in addition to the written materials, we conduct webinars on an ongoing basis.
These educational events are offered free of charge, and you don’t have to go anywhere to join us. If you take advantage of the opportunity and stay with us until the end of the presentation, you will qualify for a free one-hour virtual consultation, which is a $400 value.
You can see the dates if you visit our webinar page, and we ask that you follow the instructions to register if you decide to attend.
Ready to Act Today?
If you already know that you should work with a Cincinnati asset protection lawyer to put a plan in place, our doors are open. We can gain understanding of your concerns, evaluate your position, and help you take the right steps to preserve what you have earned.
You can call us at 513-721-1513 to schedule a consultation appointment, and if you would rather send us a message, fill out our contact form and we will get back in touch with you promptly.
- What You Need to Know about Planning for Elder Care - March 21, 2023
- Can a Trust Be Contested? - March 16, 2023
- Ohio Medicaid Limits for 2023 - March 14, 2023