As a small business owner who puts in long hours to build your enterprise, it can sometimes feel like there is no separation between your personal and professional lives. You are probably willing to make this sacrifice to build a company that reflects your values and vision. But without a comprehensive asset protection strategy, everything you worked so hard to build could be lost if you are forced to pay money due to a claim or lawsuit against your business.

The best time to put asset protection strategies into place is before the need for asset protection arises. You can implement some of these strategies at your business’ inception. Other measures need to be consistently followed to maximally protect your personal assets.

Choice of Business Entity

There are certain business types out there that limit your personal liability. When a creditor goes after these types of entities for payment of a debt or lawsuit judgment, typically only business assets may be pursued. This is not true for other business entities. The owners of these business types can be held personally liable if the business owes money. If you’re not sure which entity is right for you and your business, set up an appointment to talk with us about it!

Maintaining Business Protocols

Choosing the right business entity is an important first step, but if certain protocols are not followed, a business entity could lose its liability protection, exposing the assets of its individual owners to claims made against the business.

“Piercing the Corporate Veil” is a very important concept for small businesses. Depositing a check in the wrong place or using the wrong card might seem like a small accident and a regular part of operating a business, but it can have very serious consequences that you aren’t prepared for.

Similarly, partners in a limited partnership are generally not permitted to play an active role in managing the day-to-day affairs of the business. If they do, a court may treat the partnership as a general partnership, resulting in the loss of its limited liability protection.

Something that all businesses can do to maintain personal asset protection is to keep company affairs separate from their personal affairs. This includes having separate personal and business bank accounts and never commingling the two, titling all business properties in the business’s name, and using the company name on business contracts and correspondence. In short, follow the law to the letter and draw a clear line between your personal and business finances to preserve your liability protection.

Estate Planning

A trust established for the express purpose of asset protection is another possibility. Here at McClenaghan Law Group, we work with clients daily to prepare estate planning documents that reflect their wishes and help them avoid probate. However, estate planning isn’t just to make sure that your home, heirlooms, and hard earned money goes where you want – it’s also to help you run and protect your businesses! There are laws that govern how much a trustee can be involved in a business, but by carefully constructing an estate plan that considers your business goals, you can make a comprehensive protection plan that covers everything you care about/

Do not wait to put asset protection measures in place to avoid devastating losses. Choosing a business entity that walls off your personal assets, maintaining formalities and separation between your business and personal affairs, purchasing insurance, taking advantage of exemptions, and creating trusts are a few of the asset protection strategies we recommend to our clients. Here at McClenaghan Law Group, our attorneys can help you explore these and other strategies and assist you with implementing an asset protection plan that best fits your personal and professional needs.

If any of these topics interest you, please give us a call to set up an appointment! You can reach us by telephone ta 614-429-1053 or by emailing courtney@lawdublin.com

The post How to Protect Your Personal Assets as a Business Owner appeared first on Charles H. McClenaghan, LLC.

Part of the reward of being a small business owner is seeing your hard work pay off over the years. The many sacrifices you made for your business will certainly pay off. Some business owners would prefer to continue to operate their business until they pass, but others looking forward to closing the sale of their business! If you are dreaming of that day, it will take some work to get you across the finish line.

Very few owners experience the luxury of someone approaching them out of the blue and handing them a check to buy their business. Selling a business requires many of the same steps that it takes to build a business. You need to plan, execute a strategy, and in some cases, benefit from good timing. Whether you are trying to cut your losses, maximize your profits, or move on to the next phase of your life, selling your business may be an entrepreneurial challenge all its own.

Sell Your Business (Not Yourself)

The owners who build a business from scratch are often the heart and soul of the enterprise. They wear many hats and yet also manage to be more than the sum of these parts.

While this may have been a winning strategy while you were running the business, when the time comes to sell it, you should no longer be the primary selling point. After all, a potential buyer is buying your business—not you. They want a strong-performing business—not a strong-performing owner.

If your business has managed to stay up and running for years, it is probably in no small part because you were doing many things right. But you need to be able to describe what those things are to another person. In other words, the success needs to be replicable. And that means having structures, or standard operating procedures (SOPs), that answer “how” questions. How do you choose the products and services you offer to your customers? How do you track your current clients? etc.

While you probably have SOPs for these and other routine business tasks, they may not be in writing. Ask yourself, if you had to delegate these tasks to another person right now, could you? If the answer is “no,” then your SOPs may be lacking the step-by-step clarity that will be attractive to a buyer.

Prepare Your Financial Records

Your company’s finances will come under scrutiny during the formal due diligence process. But even before the due diligence investigation occurs, any serious buyer will want to look at your financial documents.

If you cannot back up your claims about your business with facts, figures, and statements, the buyer could walk away, or use it as leverage to lower the sales price. You should work with professionals such as an attorney and an accountant to prepare a full list of documents needed during the sale process. If you are looking for a great accountant, let us know! We are happy to provide a referral.

Timing the Sale

One story we hear often is, “I was ready to sell, but the market just isn’t.” Don’t worry though, you may be able to sell your business in tough economic times if what you are selling is in demand. There will always be economic uncertainties. Nobody saw a global pandemic coming, for example, and disasters do not affect everyone equally. E-commerce and home fitness companies boomed during COVID-19; travel companies and retailers (which had previously done very well), not so much.

What you can control, however, is choosing to sell your business at a high point. If you’re not sure, you should consult a broker to help you gauge the market.

Legal Consideration for Selling a Business

Once you have a seller in place and have negotiated a sales price, congratulations—you are on the verge of selling your business. But before you pop the champagne, there are a few legal hurdles to clear. Fortunately, we have experience helping clients navigate the confusion of a closing.

The sales agreement is the contract that governs the sale of the business. Adjustments, broker fees, and any other details relevant to the sale (such as how you will run the business until the sale is final) must be included and agreed upon. Once the agreement is signed, both parties are bound by its terms. However, not all business transfers are conducted in this manner. Instead of selling a business, perhaps you are handing it over to family members. If that is the case, there are issues such as estate and gift tax obligations and succession planning to keep in mind. State laws and governing documents such as an LLC operating agreement may have provisions about selling or transferring a business. You need to make sure that the transaction is legal and abides by the process that you established at the time of formation. Otherwise, the deal could be dead in the water.

Selling a business is the last stage of a long and hopefully rewarding journey. The earlier you start preparing your business for sale, the better positioned you will be to close the deal when the right opportunity presents itself. This may be your first time selling a business, but here at McClenaghan Law Group, we have advised many small business owners on sales and related issues. We can provide a valuable third-party perspective while advocating for your interests: call or contact our office today to set up a meeting. You can reach us at 614-429-1053 or by emailing courtney@lawdublin.com.

The post When Should I Think about Selling my Business? appeared first on Charles H. McClenaghan, LLC.

The first common mistake is failure to do research. Taking the time to do research and see what the market looks like for your intended product or service is part of avoiding failure in your first year of business. Who is your intended customers that you are trying to reach with your product or service? Have you spoken with business owners that are already in this industry? Don’t limit your research to close friends and family members, they might not be able to see what your objective is. Speak to other business owners in your area of interest in your city, state, and country.

The second common mistake is failure to form a legal entity or forming the wrong business entity. Today, it’s very simple for new business owners to do-it-yourself by submitting a single filing but internet programs do not prepare comprehensive, tailored documents or provide legal advice about your specific business and plans. Lack of appropriate legal support while forming an entity can lead to major issues down the line as your business grows! It is prudent to invest in the advice of legal counsel or a business attorney. Here at McClenaghan Law Group, we have experience representing various types of entities from small businesses and big dreamers to larger corporations and more experienced business people. If you’re thinking of starting your own business, call us today to set up a consultation with an attorney. We can help you decide which business structure is best fit for you!

The final common mistake is that business owners fail to have valid agreements in place! Every agreement between a business owner and someone else should be valid and in writing. Without properly written contracts you may be unable to defend your company during a dispute or lawsuit. This is important for clients, employees, vendors, and anyone else a business owner makes an agreement with. The written agreement should specify the agreed-upon terms of the business relationship or transaction. Not sure what makes an agreement valid? Give us a call and we can help you create a well-drafted agreement for your use. Similarly, all documents presented to you and your business should be reviewed by a licensed attorney who is experienced with that state law that controls the agreement. Not all attorneys can review all documents, but McClenaghan Law Group has you covered in Ohio and Florida!

Successful business owners take their time to the research and plan before launching their new business. In addition, they are not afraid to seek advice from others. Our team of experienced attorneys is here to help you succeed. If you would like to avoid trouble while starting your business, give us a call to set up a consultation! Our office number is 614-429-1053 or you can email courtney@lawdublin.com

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Sole Proprietorship: A sole proprietorship consists of an individual who owns a business by himself or herself. Regarding flexibility, a sole proprietorship is easier to form, usually cheaper, and gives the owner complete control of the business, however, it does not produce a separate business entity. More specifically this means that your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business. Also, raising capital is often more difficult in a sole proprietorship, because banks are often hesitant to lend to a sole proprietorship and sole proprietorships cannot sell stocks.

Limited Liability Company: A limited liability company operates similarly to S and C corporations (both discussed below) regarding liabilities. Having the Limited Liability Company limits the amount of personal liability and debts of its members in regard to the action of the LLC.

Partnership: Partnerships are the simplest structure for two or more individuals joined together in a business or venture. Each partner contributes to the business and is expected to share all profits and losses that the business may incur. There are two common types of partnerships: limited partnerships and limited liability partnerships. Having the LLC designation limits the amount of personal liability and debts of its members regarding the actions of the LLC.

Limited Partnerships: Limited partnerships have only one general partner with unlimited liability, and all other partners have limited liability. The partners with limited liability usually have limited control over the company, which is documented in the partnership agreement. Profits are passed through to personal tax returns, and the general partner, the partner without limited liability, must also pay self-employment taxes.

Limited Liability Partnerships: A limited liability partnership is like limited partnerships but gives limited liability to every owner. It protects each partner from debts against the partnership, so they won’t be responsible for the actions of other partners. A limited liability company protects you from personal liability in most situations, such as your personal assets including your house, which won’t be at risk in case the company faces lawsuits or bankruptcy. Each member is considered self-employed and must pay self-employment tax contributions, but profits and losses are treated as personal income without facing the corporate taxes.

C-Corporation: A C corporation (C-Corp) is a legal entity that is separate from its owners. It can make a profit, be taxed, and can be held legally liable. They offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. Corporate profits can be taxed twice both when the company brings in a profit and personally when dividends are paid out to the shareholders. A plus side for having a C-Corp is when it comes to raising capital because they can raise funds through the sale of stock. If a shareholder leaves the company or sells his or her shares, the business is unaffected.

S-Corporation: This type of corporation is viewed differently than a C corporation in regard to profits and losses. Some profits and losses to be passed through directly to an owner’s personal income without ever being subject to corporate tax rates. An S corporation does not pay taxes on profits when earned by the corporation, but rather pass the profit or loss onto the shareholders to be claimed on their individual income tax returns. However, there are limitations in S-Corps; S-Corps cannot have more than 100 shareholders and all shareholders must be U.S. citizens. Just like C-Corps, S-Corps have an independent life, and if a shareholder leaves the company or sells his or her shares the company can continue relatively undisturbed.

Nonprofit Corporation: Organized to aid in charity, education, religious, literacy, or scientific work, nonprofit corporations benefit the public. Often called 501(C)(3) corporations, this type of business structure is granted as tax-exempt status which means they do not pay state or federal income taxes on any profits it makes.

In summary, choose carefully; Your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability. The Law Office of Charles H. McClenaghan can provide support and guidance to ensure your business is set up correctly! Contact us at (614) 429-1053 to set up a consultation!

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