.When starting a business, sole proprietorships are the easiest and most common form of legal structure for small and home-based businesses.
But it carries with it a tremendous disadvantage – unlimited liability where you are personally liable for all business debts. This includes business loans, taxes, money owed to suppliers and landlords, and any judgments against the business as a result of a lawsuit. If you are running a sole proprietor business, your creditors can claim your personal assets–home, automobile, savings account, and investments.
However, protecting personal assets can go beyond your legal structure. According to BusinessWeek, here are 5 others ways that you can protect your personal assets:
- Inventory everything – make a complete list of all your assets and debts
- Research exemptions and protective entities – a few of your assets (e.g. personal residence, life insurance policy, etc.) may be exempt from creditor actions because of federal or state laws.
- Avoid (or at least minimize) personal guarantees where you pledge to be personally responsible for a debt.
- Be wary of the contracts you sign – seek out the help of a lawyer to help make sure that the contract provides liability protection.
- Buy insurance – such as liability insurance, property insurance, even an umbrella policy to cover exposure that goes beyond property insurance