Your income is the key component in identifying the right asset protection strategy. Here is what you need to know about the different strategies, and which makes sense for your business’s financial situation.
LLC For Low Income Earners
A Limited Liability Company (“LLC”) is a common choice for many startups and small businesses. The LLC is a hybrid entity intended to offer the best of both corporate and individual approaches. For low income earners, this is an appropriate choice of asset protection as it offers reasonable liability protection with a limited amount of paperwork. To form an LLC, you will need to file articles of organization with the Secretary of State. Before filing, make sure that the LLC name is available to register. Because mistakes are often and easily made, it’s best to consult with an attorney before forming any entities.
LLP For Low/Medium Income Earners
A Limited Liability Partnership (“LLP”) is formed by two or more partners. Its main focus is to provide business asset protection against a partner’s negligence. Although this asset protection requires more paperwork to be filled out, your personal assets will not be affected if your partner becomes negligent.
LP For Medium Income Earners
A Limited Partnership (“LP”) offers the option of raising money from a small group of investors. This option is unlike the LLC and LLP because limited partners are not associated with running the business, but rather are only liable for as much as they invest in the company.
A LP is a good choice for small businesses in only a few circumstances because a partnership isn’t normally used to structure operating businesses. A LP is normally associated with family estate planning, commercial real estate and film industries, and as an investment vehicle.
Consider forming a limited partnership if your friends and family are interested in investing money into your small business. That way, your close group of investors aren’t responsible for the business’s operations, but still maintain a financial relationship in accordance with the success of your business.
Asset Protection Trusts For High Income Earners
An Asset Protection Trust (“APT”) is a type of trust that protects your assets from creditors. The premise here is that if you are able to distribute the assets to yourself, then you could also distribute them to a creditor. An APT blocks that possibility by transferring ownership of your assets to a trust that is controlled by an appointed trustee. An important note is that these trusts are irreversible. Once you create them, it is nearly impossible to alter them.
When starting your business, LLCs, LLPs and LPs are better asset protection strategies as they register the business as a legal entity with personal asset protection. Each state also has different laws regarding forming entities, and it is important to discuss with an attorney what structure would be best for you. Call us today for a complimentary preliminary consultation.