How to Protect Your Personal Assets From Your Business
Learning how to protect your personal assets means preventing your personal assets from being taken from you because of a business liability.3 min read
Learning how to protect your personal assets means preventing your personal assets from being taken from you because of a business liability. This is an issue that can be dangerous to your personal and professional life, so it requires more than a quick search online. Best practices to protect your personal property include:
- Understanding your exposure.
- Calculating the cost of protection.
- Choosing the right structure for your business.
- Keeping business and personal finances separate.
Understanding Your Exposure
If your business fails, you may be at risk of losing your personal assets if you don't protect them adequately. If your business is sued, you may be sued personally, exposing your personal assets. This extends far beyond the responsibilities of directors listed in the Corporations Act. You may have exposure under the laws regulating workplace safety, the Franchising Code of Conduct, the Environmental Protection Act, the Fair Work Act, and the Competition and Consumer Act.
The Cost of Protection
Of course asset protection does have a cost associated with it, just as any type of insurance does. However, that cost is significantly less than doing nothing, which could mean losing your home, savings, and other property.
Choosing the Right Structure
Establishing your company as a sole proprietorship is the simplest and most straightforward way to get started. However, it's not the best option when it comes to protecting your personal assets from liability for business activity. If you're operating as a sole proprietorship, your home, cash, investments, and property are fair game if your business is sued. No separation exists between personal and business liabilities. If you don't have an official corporate structure, then the default situation is that there is no separation between your personal identity and that of your company.
Corporations, Limited Liability Corporations (LLCs), and S-Corporations