If you are going into business for yourself, you certainly have a lot of things on your plate. The logistics are a large part of the equation, and you also have to decide on a business structure.
You never know what the future holds, so it is important to make sure that your own personal assets are protected. At the same time, the optimal asset protection strategy will shield the business if you face any personal legal actions.
Limited Liability Companies
One of the most commonly used asset protection devices for small businesses is the limited liability company (LLC).
When you have a limited liability company, generally speaking, your personal assets would be protected from creditor claims and legal actions that target your business. On the other side of the coin, if you are sued, the business and its assets would be safe under most circumstances.
In addition to the asset protection, there is another important benefit that you gain if you use an LLC.
Some people are concerned about complicating their accounting processes if they stray away from a sole proprietorship. When you have a limited liability company, you enjoy pass-through taxation. Your profits and losses can be claimed on your personal income tax forms.
Family Limited Partnerships
Another asset protection structure that can be right for some businesspeople is the family limited partnership (FLP). As the name would indicate, the partnership participants must be members of the same family.
If you establish this type of partnership, you would be the general partner, and the family members that you add to the partnership would be limited partners. An FLP is not a democracy; you would lose no control, because the general partner has sole decision-making authority.
The best way to explain the asset protection is through the use of a simple example. Let’s say that you own two apartment buildings. It is very possible that someone could get injured in one of the properties, so you have some concerns about future legal actions.
As a response, you could establish two different family limited partnerships that would hold each respective apartment building. In the event that someone does file a legal action after being injured in one of the buildings, they would be suing that family limited partnership.
The other building would be untouchable, and property that is owned by all of the partners would be protected. Conversely, if a lawsuit is filed against any of the partners personally, the apartment buildings would be out of the reach of the litigants.
Some wealthy families are exposed to the federal estate tax, and it can take a heavy toll, because it carries a 40 percent top rate. When a family limited partnership has been established, the partners can transfer assets among one another at a tax discount. This is another advantage that can be quite useful for people that have estate tax concerns.
We Are Here to Help!
You are well positioned to help someone else if you know exactly how they feel. Our firm can be described as a small business, so we can truly empathize with other business owners.
We know that you worked very hard to become successful, and you have to protect what you have earned. We would be more than glad to gain an understanding of your business and help you put the ideal asset protection plan in place.
If you are ready to schedule a consultation appointment, we can be reached by phone at (630) 568-8611. There is also a contact form on this website you can use to send us a message.
