If you’re like most business owners, your business represents thousands of hours of hustling, investment, and hard work. It’s also likely your primary source of income and a major portion of your net worth.

That’s why it’s critical to:

Have the appropriate legal structures and record-keeping in place for maximum liability and asset protection

It's important to have good asset protection

When I mention asset protection planning to business owners, I frequently encounter these common reactions: “I’m incorporated (or I have an LLC) so I’m protected” or “I’ll put everything in my spouse’s name.” You see, many business lawyers run around telling business owners that they should set up a corporation or limited liability company for liability protection. And while this is true, it’s only partial protection.  

There are two types of liability that need to be considered:  inside liability and outside liability. Business entities such as corporations and limited liability companies provide inside liability protection by protecting owners from the inside-out. For example, you own a construction company and someone gets injured on the job site, or an employee is suing you over a worker’s compensation issue, or maybe you are party to a contract dispute. When these types of lawsuits come along, having the corporation or LLC in place protects your assets from the lawsuits.  

But what if you’re ever being sued personally? For most business owners, their business is their livelihood and source of income. So what happens when you cause a bad car accident and are being sued? Or when someone gets injured at a party hosted at your home or your vacation home? Next thing you know, they’ll be suing you and trying to take away not just your personal assets, but also your ownership of your own business!  Everything that you own, including your business, is exposed to that lawsuit and could be lost. This is what we call “outside liability.”

Have proper insurance in place in the appropriate amounts 

Unfortunately, some individuals have a higher likelihood of being sued due to the nature of their professional or financial stature—in other words, those that have something to lose. In our years of experience working with thousands of clients in Wake County and surrounding areas, we find that asset protection planning is particularly important if you are a high-income earning business owner or own a business with significant value. 

Umbrella liability insurance provides protection above and beyond your home insurance and car insurance. It provides additional coverage for injuries or property damage that exceed the limits of your other policies.

Generally, an umbrella insurance policy will cover:

  • Treatment of other party’s injuries and/or funeral expenses;
  • Damage to other party’s property;
  • Lawsuits for slander, libel, defamation, or similar personal attacks;
  • Costs of legal defense; and
  • Tenant’s injuries or property damage if you have rental property.

Have a clear, written plan for:

  • If you (or a co-owner) becomes seriously ill or disabled

A typically unanticipated problem in a North Carolina family-owned business is a sudden exit or temporary setback due to an illness. In these cases, the business owner might be unable to physically perform their expected duties or mentally unable to make decisions.

While everyone hopes this doesn’t happen to them, any sudden accident or illness can introduce this situation to their family company. If you don’t already have a plan in place, your family might be left scrambling while your business flounders as you step away from the company for an extended period.

You’ll want to have documents that allow for the transfer of decision-making for your health and financial issues if something happens to you. But your family-owned business needs a contingency plan, too. The global pandemic showed us just how quickly plans can change, and it’s valuable to have that in the back of your mind as you think about anything that could affect you or your other key employees.

First, consider who could step in to handle your role if you were unable to do so for some time. Is another person trained on the same systems and software you use? Have you left good documentation of your regular activities so that another person could step in?

Second, consider how short or long-term these backup plans should be. You might only need someone to cover the basics and keep things afloat for a few weeks out of the office. But what if a critical employee required long-term care or was critically injured in an accident and remained unable to perform physical labor for months? Your incapacity plan must include the possibility of when you decide to replace someone, even temporarily.

  • When you’re ready to retire or when you die

Most business owners simply don't have an exit strategy. They are so caught up in the day-to-day business operations that they ignore estate planning responsibilities, which often results in unnecessary estate taxes that drain the life out of their businesses. Also, for whatever reason, they neglect to plan for a smooth transition to the next generation causing business operations to come to a grinding halt.

Although most business owners know that there will come a time in the future when they need to make plans to exit their company, most assume it’s so far off it’s not worth thinking about today.

The truth is that this process, known as business succession planning, can take a long time to orchestrate. That’s especially true in family businesses, where there is no guarantee that your children or other relatives will step into your place or that the transition period will be seamless.

How can I protect my business now?

We can help you protect yourself and your business from major life events experienced by you or one of your business partners. Just like a well-managed business should have a carefully-designed, written business plan, all business owners should have a carefully-designed business succession plan and estate plan.

Otherwise, without proper planning, any of these events could send your business into a downward spiral from which it might never recover. Don’t let that happen to your business and your family. Make a plan.

For more information on how Carolina Family Estate Planning can provide you with a comprehensive estate plan in the Triangle, call our office at 919-443-3035 to discuss your next steps, fill out our online form and we’ll follow up with you.