Protecting Your Personal Finances Keep a good separation between business and personal to make sure you'll be OK if your business isn't.
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Unfortunately, many businesses hit bumps along the way--and some just flat-out fail. So it's critical that business owners protect their personal assets in case their own businesses don't have storybook endings. Make sure you have these pieces in place to keep your individual assets separate from your business dealings.
Organize. Establish the business as a corporation or limited liability company rather than operate as a partnership or sole proprietorship, says Asher Rubinstein, a New York City asset protection attorney. "However, don't assume setting up a separate entity automatically protects you," he says. If you're using the business as your personal piggy bank--paying for groceries out of the business checking account, for example--someone who sues your business may be able to establish that you and your business are one and the same, and that could make things of value like your home and your investments fair game. Also, respect the formality of the entity you establish by keeping proper books and, in the case of corporations, holding annual meetings.
Share. If possible, add a second, non-spouse owner to an LLC. Single member LLCs don't provide as much protection as they used to because case law has made it easier to prove an LLC and individual are one and the same. Having a minority owner who holds even 2 percent of the company allows the business owner to make a stronger case for preserving the entity in lawsuits.