Wouldn't every entrepreneur love to
have a small business guardian angel? Not an advisor, mind you, because
there is plenty of advice available these days for small business
owners. But an honest-to-goodness guardian angel, surfacing only at your
most dire moments, salvaging a situation from total ruin.
After all, running a small business is an incredibly risky, and often difficult, venture. Starting, planning, financing and marketing a small business only gets you off the ground--if you can make it that far. Day-to-day duties require the sound management of office and equipment, employees and employment law, business finances and government taxation. Then there is that little matter of actually providing products and services, while balancing these duties.
Of course, the bottom line to all of this is turning a profit: one
large enough to justify all these expenditures of time, money and
effort. Success is the eagerly anticipated reward for taking the plunge
and exposing yourself to all of the various risks at all of the various
stages of small business formation and growth.
Unfortunately, we cannot offer you the services of the aforementioned
guardian angel to protect all that you have built up in your small
business. But we can point you in the direction of the next best
thing--a comprehensive asset protection plan.
Asset protection planning is the true "level playing field" on which
all businesses conduct economic transactions. Large businesses know
this, and they have teams of lawyers and accountants constantly looking
out for their best interests, according to the rules of play.
The problem is, most small businesses don't, and won't ever, have
these kinds of resources available to them. Moreover, many are unaware
of the legal protections granted to all businesses.
This puts small business owners at a distinct, and unnecessary,
disadvantage in the world of commerce, leaving them exposed to risks
that may be completely out of their control.
Asset Protection Planning for Your Small Business
However, it needn't be this way. To this end, Nicholas C. Misenti and the editors of the Business Owner's Toolkit®
have compiled a set of strategies and helpful advice that, once
executed well in advance of any trouble, would help preclude the need
for a guardian angel to bail you out of any worst-case scenario.
In addition, these asset protection planning strategies are equally
available to debtors and creditors alike, and wise entrepreneurs should
engage in these strategies, no matter which side of the relationship
they are on. But for the purposes of explanation, the discussion that
follows is told from the debtor's point-of-view.
Armed with this knowledge, small businesses should truly be able to
compete on that same "level playing field" with their more well-heeled
and more powerful counterparts, resulting in a better chance of success
and a lesser chance of financial ruin, if things go terribly wrong.
Our discussion is broken down into three sections:
- Are Your Assets at Risk?
sets the stage for the business strategies presented in the next
sections by helping the individual understand how a debtor can lose
assets to a creditor. Personal strategies here focus on effective
exemption planning of your assets and an overview of how these plans
would work in a bankruptcy situation. Moreover, guidelines are offered
for legally transferring and protecting assets, as well as avoiding
creditors' challenges to these transfers. Finally, the complicated rules
regarding asset protection trusts are explored in-depth.
- Limiting Liability in Your Business Structure
explores strategies when initially forming, structuring and funding
your business operations. Choosing the type of entity, where to form it,
and how to fund it or get financing can have a tremendous impact on how
secure your personal and business assets actually are. In addition,
minimizing income and estate taxes is a form of asset protection (here
it's the government, and not some creditor, going after your wealth),
and proper business formation and structuring can go a long way toward
reaching that goal. Of course, if your business is already established,
nothing prevents you from going back and applying these strategies going
- Avoiding Day-to-Day Liability Risks
focuses on the many risks inherent in operating a business and how to
avoid (or at least minimize) your exposure to these risks. Primarily,
these strategies urge business owners to avoid leaving vulnerable,
unprotected assets within the business entity that could later be seized
after defaulting on a contract, committing a tort (negligent act) or
having the veil of limited liability pierced by a court. In addition,
strategies are given for dealing with that inevitable day in court,
something most successful business owners will be unlikely to avoid
because of the nature of business dealings and the rules of our current
system of justice. Finally, insurance is discussed as your last line of
To be sure, comprehensive asset protection planning is a very complex
topic that touches on almost every aspect of business ownership. Your
individual plan will depend on your comfort level and specific goals for
your business. But the goal here is legal protection of your
hard-earned assets. Every reputable, honest business is allowed these
Stretching these goals to the purposeful deceit of other businesses
or individuals is not asset protection planning--it is fraud. Doing so
may put you on another "level playing field," only this one may be
surrounded by metal bars and fences.
So before you execute any asset protection plans, be sure to consult
your attorney or financial advisor. By doing the legwork now, you'll
make their job easier and your bill for services smaller.