Business Liability: Keeping Your Business and Personal Assets Separate
Imagine your business failing. Now imagine the loans that you have tied to your business. What if you lost your house because of the inability to pay back those loans? It could happen. In fact, it happens all the time. The good news is you don’t have to lose your personal assets due to business bankruptcy. You can protect your home, car, and other personal assets by simply keeping your business assets separate.
About Business Insurance
One mistake business owners make is to think their business car can be covered under their current insurance or that their homeowner’s insurance will cover business clients. Unfortunately, it doesn’t work that way. Your business vehicle needs to be covered under special insurance as does your business. If you run your business from home, you will need liability insurance to cover business clients, insurance to cover business equipment, etc. Your homeowner’s insurance will not cover these areas.
Why You Need to Form a Corporation
Forming a corporation can protect your personal assets. According to Investopedia, “The appeal of corporations as an asset-protection tool lies in the limited liability provided to its officers, directors and shareholders (principals). Corporate principals have no personal liability for corporate debts, breaches of contract or personal injuries to third parties caused by the corporation, employees or agents. While the corporation may be liable or responsible, a creditor is limited to pursuing only corporate assets to satisfy a claim: the assets of the corporate principals are not susceptible to claim or seizure for corporate debts. This protection from personal liability distinguishes the corporation from other entities, such as partnerships or trusts.” In other words, running your business as a corporation can prevent you from losing your house and other important assets should your business fail, get sued, etc. There are five types of corporations and you need to choose the right one for your business.
Choosing a Corporation That’s Right for You
Each corporation is different. While you can form a corporation on your own through online websites, it pays to get professional help. Consulting a lawyer will ensure you choose the right corporation for your business. This ensures that you’re properly protected. Trying to do this on your own could create a big mess and cost than if you had hired a lawyer in the beginning.
Without proper protection, you really could lose your house due to poor business decisions. You need to make sure your personal assets are protected and that means having the right insurance and setting up the right entity for your business. You can look at sites like SmartAsset for information, but you need to take the time to protect your business and do so correctly by hiring a business attorney.
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