Thursday, October 1, 2009

I want to protect my personal assets from my business. Can I use a trust? An LLC?

A trust does not protect any of your assets, unless you give up all of your rights to benefit from the assets. What you do need is a limited liability entity, such as a corporation or limited liability company, to protect your personal assets from your business assets, or even some of your business assets from other of your business assets, if any, as well. There is a caveat here, however. Lenders, landlords, and other financial parties will usually require your personal guarantee in addition to the limited liability entity's contract signature, especially in the case of newer and smaller entities. Thus, protection from many of the most common major contractual financial exposures is doubtful. If your business operation has technical risks, i.e. potential significant damage to persons or property that cannot be reasonably insured, e.g. giving helicopter rides or selling vitamins to the public, then limited liability is of potentially great value. Another consideration is that there are costs and efforts associated with organizing and maintaining limited liability entities, including an annual $800 franchise fee for the privilege of being a limited liability entity in California, whether your business makes a profit or not.

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