The Best Asset Protection Protects Your Business From YOU!
As soon as you start a business, you’ve got a liability issue. That’s because a business puts everything you own at risk. In fact, it’s not whether the business needs a business structure like an LLC, S Corporation, C Corporation or Limited Partnership to save on taxes. In the beginning, the business structure is to make sure any business issues stays IN the business.
Here’s a true story pulled right out of my new book “Smart Business Stupid Business”, co-authored with business structure expert Megan Hughes:
“Don’t Have Enough Money to Pay For a Business Structure? Then You Probably Don’t Have Enough Money to Start a Business
A woman came to one of Diane’s events and spoke to her at one of the breaks. She had started a business, but didn’t have enough money to spare to also create a formal business structure to operate through. Diane repeated her caution, that without the business structure, the woman was exposing herself to unnecessary liability.
About 6 weeks later, the woman contacted Diane’s office. Things were not going well with the business. In fact, someone was threatening her with a lawsuit. She wanted to know if Diane could put her in touch with someone who formed business structures.
But it was too late. Once there’s a threat of a lawsuit – even if it’s just a threat – the damage is done. It’s what is in place at the time the cause of action arises that counts. And, in this place, there was nothing more than a trade name. The woman was going to be on the hook for any damages assessed against her business.”
Hopefully that story is enough to convince you that you need a business structure to protect your personal assets from risk of your business.
But what about protecting your business from your personal acts? An S Corporation or C Corporation provides a corporate veil that protects you from the business. But it doesn’t protect your business from you.
If some slips at your house or your teenage son runs into the neighbor, you have risk personally. And your ownership in the corporation can be taken in a lawsuit.
The best way to protect your business is with an LLC. And the best news is that the LLC can elect how it wants to be taxed. So, don’t operate your business in an S Corporation. Operate it in an LLC-S (LLC electing to be taxed as an S Corporation).
If you already have an S Corporation, you can switch to the LLC-S with no tax consequences. In today’s crazy litigious world, you need all the protection you can get.