In my last blog post I discussed the dangers of operating as a Sole Proprietor because there is no separation of your business and personal assets. To operate in this manner exposes the business owner(s) to maximum risk and is completely unnecessary. However, there are many business owners who have incorporated yet still face other risks that carry extreme consequences.
Today I want to focus on one of those other common, and unnecessary, practices that many business owners fall into that is equally dangerous. I see many business owners who do not properly separate their business assets, which can lead to disaster. Allow me to share a couple of examples of this, as well as the potential repercussions:
Example 1: If you own the building that your business operates from, and you own the building under the same entity that your business operates out of, you are unnecessarily exposing the building asset. If someone were to pursue legal action against your business, the building would be one of the assets within that entity that could be lost in the judgment. All of this could be easily avoided if you took one very simple protective measure. By setting up a separate LLC to own the building and thus lease it to your operating company, you have separated the asset from your operating business and limited your exposure.
Example 2: If you own a business that requires the use of expensive equipment, you could be facing serious exposure if you own all of that equipment under the same entity that your business operates from. Anyone pursuing legal action against your business could pursue the assets of the company, including your equipment, resulting in significant loss to you. By setting up a separate Leasing Company that owns the equipment and leases it back to your operating company, you ultimately insulate the expensive assets from your operating company and minimize your potential loss.
While these are just 2 examples, there are countless others where business owners (yes, even those who have "properly" incorporated) unknowingly face similar, and significant, exposure within their business. As you ponder this information, I will leave you with one question: Does any of this risk apply to you?
As always, please contact Safe Shield with questions...
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