You’ve shed blood, sweat and tears to make it to where you’re at in your career. You’ve worked hard and earned every penny. You’ve built it and they have come. How do you ensure protection for the fruits of your labor? Volumes have been written on asset protection; yet, many people fail to take the proper steps to ensure the protection of their personal assets while running a business. Effective planning now can help protect your accumulated, personal assets.

One of the best tools for personal asset protection is the creation and operation of a business entity with limited liability features. All states have enacted legislation that permit an individual to take advantage of business entities with personal liability protection. Such entities include, but are not limited to, a corporation, limited liability company, limited liability partnership, and limited liability limited partnership. Each type of entity has their own unique characteristics. Whether you would choose to form a limited liability company as opposed to a corporation, for example, depends on the consideration of many issues, including but not limited to: (1) formation, structure, and maintenance of the entity; (2) ownership; (3) selecting the entity’s decision-maker(s); (4) transfer of ownership interests, or the effect if one of the owners dies, divorces his or her spouse, or becomes bankrupt; (5) taxation; and (6) needs for capital.

The modern trend is for individuals to select the limited liability company (LLC) as their choice for a business entity due to its flexibility of management and limited liability features for the members (caveat: entities with limited liability features only protect the owners from being liable for the debts of the business; that is, a person may still be liable in his individual capacity for any torts committed by such person individually). The statutes governing LLCs are devoid of the formal requirements imposed upon corporations – such as required meetings, record dates, maintenance of minutes and records, and the like. Features like this make the LLC one of the most attractive forms of business entities, but you should always discuss your situation with your attorney or CPA prior to formation. After formation, here are two “gold nuggets” for operating your limited liability company (or other form of business): (1) keep your personal and business assets separate and maintain detailed, meticulous records; and (2) when signing contracts, always indicate your capacity as manager and that you’re signing “on behalf of” the entity. Here’s an example: “ABC, LLC, by John Doe, as manager and on
behalf of ABC, LLC.” This will help ensure protection against
personal liability.

In sum, ensuring that you are operating a business via an entity with limited liability features is essential to protecting your personal assets. Do not operate your business as a sole proprietorship or general partnership, as you and the other owners will be personally liable for the debts of the business. Always consult an attorney and/or CPA prior to formation so that he or she best advise you on the type of entity you should form given your particular circumstances.

Daniel L. Sadler is an Associate Attorney at the Rieger Law Group PLLC in Norman, OK, where they represent builders and developers across Oklahoma. Daniel can be reached at dsadler@riegerlawgroup.com . This information is NOT intended as legal advice and should not be relied on as such.