Business Ownership: The Importance of Protecting Your Assets
Recently there has been a surge in people starting their own businesses, as more people were put out of jobs or had more time to explore their passions while working from home. But starting a business isn’t easy, and there are lots of rules and regulations you have to follow in order to be doing it lawfully, and to avoid running into any issues. One of the things you need to worry about when starting a business is how to protect your assets, otherwise you could lose a lot of money.
What are assets and do you need them?
Assets are something of value that a company or business owns, that has monetary value (but is not necessarily money itself). An idea of assets that an individual may own are things such as houses, cars, or even investments. For your business, these assets can be the machinery you may use, or a patent to a design you came up with or bought from someone else. And assets can be used to generate value or for future financial gain, and these can also be split into current assets or fixed assets. Long-term investments like machinery of furniture are fixed assets, as they are something which helps you to generate money over a long period of time, meanwhile things such as equity or your inventory, as these are things that can generate money in one fiscal year.
What does protecting them do?
Protecting your assets insures them against any financial loss. For instance, if you have a patent which you bought or created yourself, and you have someone who is going to sue your company for use of this patent, protecting it could deter the claimant, or prevent the loss of this asset after judgement. There are other risks that you may have to deal with as well, which include claims for damages from your employees (such as if they get injured using your machinery), and also customer protection issues (if someone is hurt or injured from a product you sold). Asset protection is basically just protection against lawsuits and claimants, as although these can be paid out in monetary value, they can also direct the claims directly at your assets, which will cause your company a big loss.
How do you protect them?
There are several different ways to protect assets, with varying degrees of liability as well. One way to do it is through becoming a corporation. A corporation removes the personal liability from claims, so instead of you as an individual being responsible for the accident, it will be the corporation itself. This means that your assets such as machinery can be included as the corporation’s assets, and they can not be seized as a result of the claim. Another way to protect them is to create a Trust, of which there are two types. There is the revocable trust, which still places you in control of the assets, and reintroduces the idea of personal liability, as this means you can be sued for the assets. Or there is irrevocable trust, in which after the trust is created you can not change or revoke it, which means you can’t be sued for the assets as you are no longer the one who owns or is in control of them.
Which protection plan is the best?
Which plan is the best for you will depend on your company and what assets you are protecting. If you have any assets that can be considered ‘dangerous assets’ (machinery, a workplace, or business property) then it is best to get a plan that moves the responsibility of these assets out of your hands, such as the Trust or corporation. It also helps to get insurance against these types of claims, as then if someone is injured in your workplace or by using your product, the insurance should cover the claims and pay out for you, so that your assets remain untouched. Although this doesn’t protect your assets themselves, it is an extra layer of protection against them. And there are many different companies that provide insurance, and can be extended to protect any assets you need to protect overseas, so if you want to know if this company provides business insurance in Ontario and the place that you live, it is best to check so you only need to take out one claim, and not multiple. Fortunately, if you are the only worker and handler of your business, then you won’t need to go for the protection plan with the biggest coverage, as you won’t have workers that could put claims in against you, but consumers still can.
If you are thinking of starting a business or already have, then this is one of the first things you’ll want to think about, and something you will have to keep considering as you gain more assets and/or as your company continues to grow. The last thing you want is for someone to get injured and be able to directly sue you for it, or to be able to have your assets seized if you lose a claim. There are also other ways for protecting your assets which may be more beneficial to your business than the ones listed, and you can get an advisor to help on these matters too. Just make sure you do it, or your business will suffer for it.