You should definitely prioritize asset protection when you are starting a business. It is important to separate your personal property from the business assets, and vice versa. There are two legal structures that are typically utilized for small business owners that want to protect assets, and we will look at them in this post.
Limited Liability Companies
A limited liability company can provide an asset protection solution in many instances. When you establish an LLC, there is legal separation between you as an individual and the business as an entity. Generally speaking, if the business is sued for any reason, your personal assets would be out of play.
The reason why we included the caveat “generally speaking” is because there are some exceptions. If you are an LLC owner and you injure someone while you are serving in your capacity in the business through your own negligence, you could be held personally liable.
You are required to hold and deposit taxes that you deduct from the wages that you pay your employees. If you fail to do this, you assume personal liability. Acts of fraud, negligence, or recklessness that damage others could also result in personal liability.
Family Limited Partnerships
There is another asset protection structure called a family limited partnership that can be the right choice when certain circumstances exist. As the name would imply, members of the partnership must be in the same family. The general partner has sole decision-making authority, and there are other family members that are limited partners.
To provide an example of how a family limited partnership can be helpful, let’s assume that you are a real estate investor. You own two apartment buildings and a shopping center, and the rents that you receive provide a significant level of income.
Of course, when you are a property owner, you can be sued if someone is injured in one of your buildings. This is naturally going to be a source of concern for all landlords.
You could convey each of your three investment properties into a separate family limited partnership. If someone is injured in an apartment building or the shopping center, your personal assets would be protected. Property that belongs to the other partners would also be unreachable.
Plus, the other two pieces of property would be protected as well. The only entity that could be sued would be the family limited partnership that owns the building where the injury took place. To add to the asset protection strategy, you could intentionally hold limited equity in the property that is owned by the family limited partnership.
On the other side of the coin, if you or any of the partners is personally sued, property in the family limited partnerships would be protected. Another advantage to be gained through the creation of family limited partnerships is the ability to transfer assets between partners at a tax discount. This would be a factor if you are exposed to estate taxes.
Download Our Special Reports
We have provided a brief, basic overview in this post. If you would like to obtain more detailed information about limited liability companies and family limited partnerships, we have a couple of great resources available that can be easily accessed through this website.
Our attorneys have compiled a rather robust library of in-depth special reports. They cover many different important estate planning and elder law topics, including family limited partnerships and limited liability companies. Best of all, the reports are being offered free of charge at the present time.
You can visit our special reports page to gain access to these two reports, and you can feel free to access any of the other ones whenever you want to add to your knowledge.
Attend an Upcoming Seminar!
Written information is great, but there is no substitute for a direct interaction with a licensed estate planning attorney. We are holding a number of seminars over the coming weeks, and you can obtain some eye-opening information if you attend the session that fits into your schedule.
There is no admission charge, but we do ask that you register in advance, because space is limited. To do just that, visit our seminar page and follow the simple instructions when you identify the date that works for you.