You are making a very big move when you decide to get into business for yourself. There are many things to think about, and though it is a bit scary, it is just as exciting. The key is to make sure that you attend to every detail from the outset so you build on a strong foundation.
With this in mind, asset protection is an extremely important consideration. As you work hard to create something of value, you will have a lot to lose, and the steps that you take in advance will pay dividends later on.
Family Limited Partnerships (FLPs)
One asset protection device that can be ideal in some cases is the family limited partnership. As the name would indicate, the people that comprise the partnership would be members of the same family.
If you create the partnership, you would be the general partner, and you would add family members to serve as limited partners.
You don’t have to worry about giving up control of the business that you convey into the FLP, because in a sense, it is a partnership in name only. As the general partner, you would have the absolute decision-making authority as long as the partnership is intact and you retain that role.
The best way to explain how this works is to use a simple example. Let’s say that you are a real estate investor, and you own two apartment complexes. You have lawsuit concerns, because someone could easily get injured on one of your properties since there is so much activity.
As a response, you could convey each of the apartment complexes into a different family limited partnership. If someone is injured on one of the locations and they file a lawsuit, the suit would be filed against the FLP that owns that particular property.
Your personal possessions and property that is owned by the general partners would be protected. Of course, the other property that is in a different family limited partnership would also be out of the reach of the party that is filing the suit.
On the other side of the coin, if any partner is personally sued, the apartment complexes would be protected.
This is a very basic explanation, but there are different layers of protection that can be useful for some people. Plus, high net worth families with estate tax concerns can use family limited partnerships to transfer assets at a tax discount.
Limited Liability Companies
Another simple and straightforward asset protection structure that is highly effective is the limited liability company (LLC). When you establish an LLC, you create a wall of separation between the activities of your business and your own personal finances.
Generally speaking, your property would be protected if someone initiates a legal action against the business. If you are sued, the business would be protected under most circumstances.
The protection is not absolute, but it is very solid. In addition to the asset protection, there is the advantage of pass-through taxation. You can claim your business profits and losses on your personal income tax returns, so your accounting is streamlined.
Need Help Now?
You are here because you need some asset protection and business planning help, and we can humbly say that you have found the ideal resource. We have guided many business people in our community over the years, and it is gratifying to watch them succeed.
Our goal is to make sure that you and your family are protected every step of the way, and we value the long-term relationships that we establish with our clients. You can rest assured that you will feel totally comfortable whenever you interact with anyone on our team.
If you are ready to schedule a consultation, we can be reached by phone at 248-251-1001. We also have a contact form that you can fill out if you would rather send us a message.
