Protecting your personal wealth from business liabilities
Fortunately, many businesses are not often the subject of a lawsuit. However, lawsuits can become more prevalent if your business is self-funded or you do not have the correct business insurance. Your personal assets are also more likely to be seized if your company is facing a lawsuit. Your private capital may also be at risk from various business liabilities if you own a small business that fails due to sustained revenue loss. However, with correct financial advice regarding your business and personal assets, there are various ways to protect your personal wealth from business-related reliabilities.
#1- Select the right legal entity for your business:
The first step to protecting your personal wealth from business liabilities is to select the right legal entity for your business. There are two common entities used for asset protection; company and trust. Although operating your business as a sole proprietor may appear more attractive, it can place your personal assets at risk of potential lawsuits. By setting up your company as a proprietary limited (Pty. Ltd.), you can keep your business separate from your personal assets. You can also add layers to your entities and designate a separate entity for different legal structures of your company. This may prevent one entity from inheriting the issues of the other.
#2- Purchase appropriate business insurance:
Many asset protection companies claim that simply setting up an entity will defend your personal property against a business lawsuit. However, this is not true. While entities will add protection to your personal wealth, you still require appropriate business insurance for other purposes and protections. The type of business insurance you purchase depends on the kind of business you run. Three common business insurances that are commonly used are; public and product liability insurance, as well as worker’s compensation insurance.
#3- Separate personal and business finances:
Another way to protect your personal wealth is to create separate accounts and documentation filing systems for your personal and business-related financial transactions. Set up bank and checking accounts under the business name and only use the business accounts for any business-related transactions. You will also need to register any legal documents related to the company under the company name, including, but not limited to, property and equipment leases, supplier agreements, and employment contracts. It is important to note that if you apply for business credit, you will need to guarantee it using your personal credit, which may put some pressure on your personal wealth.
About Sphere Accountants & Advisors-
If you seek advice on protecting your assets, your search ends with Sphere Accountants and Advisors. Through working with Sphere Accountants and Advisors, we consider the complete picture and continually look for ways to improve your financial situation to create, protect and grow your wealth. We apply this approach whether you come as an individual or a business. With a breadth of expertise spanning all aspects of taxation, accounting, financial planning and more, we can offer a complete solution for all your financial needs.
Visit our website, call us at (03) 8899 6399, or email us for more details.