February 27, 2015

As a business owner, you should recognize that it’s essential to separate personal creditors from business creditors. While a personal creditor refers to a debt that you personally are responsible for, a business debt refers to creditors trying to come after your “business entity”. Assets put inside the business entity may be vulnerable to business creditors, but they should be protected from personal creditors. 

Many small business owners make the assumption that assets inside a business entity are safe from liability issues. This is a mistake, and that’s why it’s so important to separate business from personal creditors. Avoid commingling of any funds and stay in line with all business entity formalities to ensure that you have protected yourself as much as possible. Reducing the pool of assets available to creditors is the most important goal of separating your personal from your business debts.

To do this, you need to select the proper business entity from the outset. Many business owners select the LLC or the corporation in order to achieve the superior protection afforded by these kinds of entities as compared with a partnership or sole proprietorship. Limited liability protection for owners is provided under both of these structures, but it’s important that you work with an experienced business asset protection attorney to make sure you’re meeting your goals appropriately. Asset protection planning for the business owner is a long-term process.