Business owners are often so busy working in their businesses that they neglect to work on their businesses by addressing important asset protection issues.
It is vital for business owners to take into consideration the following items from an asset protection standpoint:
How to own their corporate stock.
Whether to implement basic business agreements to protect and enhance their businesses’ value.
Whether to implement a deferred compensation plan.
Let's take a look at each of these considerations:
For a business owner who owns either a C or an S corporation, there may be benefits to converting your corporation into, or merging your corporation with, a limited liability company (LLC). An LLC electing to be taxed as a corporation has benefits that limited partnerships or limited liability partnerships don’t, e.g., the ability to own S corporation stock.
One of the biggest benefits of an LLC is what is called a “charging order,” which protects the owner’s interest from their personal liabilities. Under a charging order, a creditor is stripped of the ability to force a distribution, liquidate the LLC, or otherwise manage the business.
Protect Value Inside the Business
Some documents that businesses should have to protect their interests are Non-Compete and Confidentiality Agreements, Buy and Sell Agreements, and a Deferred Compensation (more on this below), or Bonus Plan.
Non-Compete and Confidentiality Agreements work so that employees who leave businesses can’t compete with them, and they cannot share any trade secrets or confidential information of the company with a third party.
A Buy-Sell Agreement will protect both the exiting and remaining business owners’ interest in the business. This agreement will provide the exiting owner with a fair value for their ownership while leaving the remaining owner a means by which to purchase the exiting owners’ interest. In other words, it’s a win-win for all!
Last, but not least, business owners should consider putting a deferred compensation, or bonus plan in place to reward employees who are high performers. These employees should be rewarded in a way that will protect and increase the business’ value. Provisions can also be made so that it is difficult for a key employee to leave the business. Protecting the internal value of a business should be of the utmost priority for any business owner. Putting these protections in place can only add value, worth, and predictability to your business.
Take these steps to protect your business today! Call us at (858) 792-3444.
Based on: https://www.estateplanning.com/Asset-Protection-Considerations-for-Business-Owners/