Legal Fortification: Protecting Your Wealth as a Business Owner

Legal Fortification: Protecting Your Wealth as a Business Owner

As your business grows, so too does its risk exposure. Learn how to fortify your assets and protect your wealth as a business owner.

You’ve worked tirelessly to grow your business. Now, protecting what you’ve earned is the next step in ensuring long-term success. 

Proactively protecting your wealth not only establishes financial security but also helps ensure your business lives on once you step down. 

This proactive planning begins with thoroughly understanding the legal risks and obstacles that you’re exposed to. 

Here, we explore those risks and obstacles to help guide you in creating your own wealth protection strategy.

Common Legal Risks Small Businesses Face

From a legal standpoint, what risks do business owners have to consider? 

Here are some of the most common.

1. Employment Law Violations

Businesses must comply with a range of laws related to employment. 

Workplace discrimination laws safeguard employee rights. Violations can lead to legal penalties and damage to the company’s reputation.

Employers also face risks from wrongful termination and harassment claims. Misclassifying employees, such as incorrectly labeling full-time workers as independent contractors, is another significant concern.

2. Regulatory Non-Compliance

Beyond labor laws, businesses must understand regulations related to licensing, industry-specific requirements, environmental standards, health and safety, and data privacy. 

Non-compliance can result in significant fines, disruptions to operations, and legal issues.

Data breaches resulting from violations of data privacy laws can severely damage a company’s reputation and lead to costly lawsuits.

3. Contractual Disputes

While contract breaches are certainly major inconveniences, they can occur with vendors, clients, or business partners. 

Poorly drafted agreements are a major contributor to disputes, often leading to misunderstandings and costly legal battles.

4. Professional Liability

Your business’s level of liability is impacted by the industry you’re in, the type of work you do, and the information you gather from customers. 

However, failing to meet expectations or perform agreed-upon services can lead to claims of negligence or failure to perform guaranteed duties.

5. Taxes

Businesses must comply with stringent tax requirements at the local, state, and federal levels. This necessitates a thorough understanding of payroll taxes, reporting, filing procedures, and deadlines.

Errors in collecting and remitting sales or payroll taxes can result in penalties, accrued interest, and even legal action from the IRS.

Asset Protection Strategies for Business Owners

These business risks can be extremely costly. Avoiding missteps and adequately planning for potential issues is crucial to protect your assets and strengthen the business you’ve worked hard to build.

Here are a few asset protection strategies you can use to keep yourself out of trouble.

1. Create the Right Business Structure

Many small business owners establish LLCs or corporations to gain liability protection.

As a sole proprietor, your personal assets are vulnerable to business-related claims due to the lack of legal and tax separation (in other words, if someone sues your business and you don’t have the proper legal and tax separation in place, your personal assets are on the line).

Incorporating your business creates a separate legal entity, providing such liability protection.

2. Secure Insurance Coverage

Don’t overlook the value of the right insurance plan. 

You want to have a plan in place to protect your business in case of unexpected hardships or changes.

Consider adding these types of business insurance to your plan:

• Property insurance
• Casualty insurance
• Life insurance
• Business income insurance
• General liability insurance
• Professional liability insurance
• Workers’ compensation insurance
• Data breach and cyber insurance

3. Prioritize Estate and Succession Planning

Succession planning is crucial for the long-term future of your business, even if it seems daunting.

Develop a succession plan or buy-sell agreements to ensure business continuity and minimize stress for your heirs or employees during the transition.

Integrate your business interests with your estate plan to minimize tax liabilities and ensure adequate legal protections.

4. Improve Your Agreements

Often, many common business disputes can be prevented by simply ensuring the right contracts and agreements are in place.

Make sure you:

• Draft contracts with clear language to avoid confusion.
• Ensure contracts include clearly defined terms, obligations, timelines, and deliverables.
• Include indemnification clauses for liability protection.
• Include language about dispute resolution methods.
• Include a termination clause.

It helps to have standard contract templates for vendors and clients that have been reviewed by a legal professional and can be used for each new relationship.

5. Separate Your Business & Personal Finances

Even if you have extra liability protection for your business through incorporation, you still need to be sure you’re separating the business from your personal finances. 

Doing so helps you file taxes properly, report accurate business expenses, reduce the risk of errors, maintain professionalism, and avoid blending your assets, which can further cause legal problems.

Fortify Your Hard-Earned Wealth With Help From Avior

Managing business risks is an ongoing challenge for all enterprises, regardless of size, success, or stature. 

By proactively implementing the right strategies, you can enhance asset protection for both your family and your business.

The Avior team assists business owners in achieving growth, preserving wealth, and developing comprehensive succession plans.

Contact us today for a personalized, one-on-one consultation.

Disclaimer: Nothing contained herein should be construed as legal or tax advice. Avior and our Advisors will work with your attorney and/or tax professional to assist with your legal and tax strategies. Please consult your attorney or tax professional with specific legal and/or tax questions. Investment Management and Financial Planner are offered through Avior Wealth Management, LLC, an SEC-registered investment advisor. Past performance is not a guarantee of future results.  Investments are subject to loss, including the loss of principal.