By Maurice Offit Esq.
The next time someone tells you to “mind your business,” thank them. Modern business owners face an unprecedented number of challenges to their businesses’ assets, from patent litigation to ownership disputes and the countless legal issues in between. Fortunately, along with a trusted legal partner, you have formidable tools at your disposal to protect you from the claims, lawsuits, and other proceedings that threaten your business’s assets.
Review Your Insurance Policies
When it comes to protecting your business’s assets, Plan A is simple: Don’t get sued. And if you do get sued, win. But what if you lose? The key to surviving an expensive lawsuit lies in your insurance policies. If you believe, however, that general liability insurance is sufficient enough to protect your assets, take another look. Every policy has its limits. You may not be protected against certain claims if those claims are in excess of, or are excluded from your policy. Before you find out too late, meet with your insurance agent to determine what is and is not covered in your policy. You may decide to couple a comprehensive policy with a specialized policy in order to defend your business from a specific category of litigation. Sexual harassment claims, for instance, are not covered by comprehensive general insurance policies. In order to protect your company from an expensive ruling or settlement, you would need to take out employment practices liability insurance, which covers sexual harassment, wrongful termination, discrimination, and other forms of professional liability. Business owners should also consider umbrella insurance, which picks up where general liability policies leave off. An umbrella policy does not come into play until claims are in excess of your base coverage, providing you with an easy way to increase your policy limit. Keep in mind that no single plan can protect you against every claim, so watch out for the exclusions contained in your umbrella policy.
Distribute Your Cash Among Owners
The more assets tied to your company, the higher the risk you will lose those assets. Do not let your business become a cash cow. Creditors and claimants love cash. Though keeping currency in your accounts helps your business maintain liquidity, surplus cash poses a threat once someone comes after your assets. A business is better off when its cash is distributed among its owners. Whenever you can, withdraw. Owners are not responsible for the debts of their companies, so cash flow can remain relatively uninterrupted during times of crisis as long as owners control it. You can always loan money to your business if necessary, then collect the cash again.
Structure Your Business Into Multiple Entities
In your hands, your business’s cash reserves may be protected, but what about your business’s other assets? Keeping all of your property under the same name makes it easier for creditors to seize all your assets at once, effectively ending your business. For each piece of property your business owns, or each activity in which your company participates, establish an operating entity, that is, a company that possesses your business’s assets, but does not outright own them. Your holding company, meanwhile, assumes ownership of the property, and leases it to a smaller entity, thereby reducing risk for both. The farther you can spread your assets among entities, the safer your property will be. For example, if your business owns a building, you can mitigate the liability of that building by leasing it to an operating company. The operating company would take responsibility for the day-to-day management of the property and, thus, the associated risk. As long as the operating company comprises minimum assets, it is safe from the claims of creditors—as is the holding company, since it is rarely responsible for its subsidiary’s debts. While it takes careful planning and accounting, restructuring your business into separate entities is one of the most effective strategies to secure your business’s property. Protecting your assets is a full-time job, but you don’t need to take on the responsibility all by yourself. A qualified asset protection lawyer can advise you on drafting comprehensive safeguards for your business, and help you find the policies that best suit your goals.
ABOUT MAURICE OFFIT
firstname.lastname@example.org | 301.575.0308 Maurice Offit is an estate planning attorney, co-founder of Offit Kurman Attorneys at Law and a member of the firm’s Management Committee. Mr. Offit counsels a large number of clients who share an interest in minimizing estate taxes and asset protection from the claims of creditors. You can also connect with Offit Kurman via Facebook, Twitter, Google+, YouTube, and LinkedIn.