How to Protect Your Personal Assets by Incorporating Your Business
As a newbie owner, you must be worried about “How to protect personal assets if your business fails?” The answer lies in separating your personal assets from that owned by your business.
How to Protect Personal Assets through Business Incorporating
A provider of services for company incorporation in Singapore can explain how to achieve it through business incorporating. These professionals can assist you to protect personal assets in a business by helping you choose the right type of legal structure.
They know that a business firm like Sole Proprietorship or Partnership is not useful for the purpose.
Business Firms
A business firm is not an incorporated but a registered entity. The firm has no distinct, separate legal identity from its owner. It cannot own real estate or assets in its name and, thus, has no credibility. As a business owner, you own them. So registering a firm will not help you protect personal assets in a business.
Private Limited Company
The proper business structure that can achieve the goal for you is a Private Limited Company. It has a legal identity separate from its owner. It is a legal person having the rights of a natural person. It can sue or be sued in a court of law. It can own real estate and assets in its name for its business purposes.
Most importantly, it is responsible for repaying its debts and losses. The court can order to use its assets for the purpose.
Limited Liability
A private limited company limits your liability to the amount you have invested in its shares. The company is responsible for paying its debts and losses. Your assets are not used for the purpose. It happens because of the corporate veil.
Corporate Veil
The corporate veil is a legal protection that separates you and your business. The veil protects you from being held personally responsible for your business’ debts or claims.
Generally, the court honours the corporate veil and spares your assets from being used for restitution. However, it pays no heed to the corporate veil if there is proof of fraud. In this case, if you can not pay off the company’s debt or loan, the court can use your assets for restitution.
Failing to separate personal and business finances is one of the ways you, as a shareholder and the owner of a company, can unintentionally lose the corporate veil. It is called the piercing of the corporate veil.
Piercing of the corporate veil removes the legal separation between you and your company. And you have to cope with unlimited liability, which may put your assets at risk.
You can avoid this by opening a corporate bank account to manage your business finances.
Tips on How to Protect Personal Assets
In Singapore, many accounting, corporate secretarial and law firms provide services for a business incorporating. These professionals will also advise you on risks associated with business structures. They can advise you on how to protect personal assets in a business using various types of insurance. Hire the best of them for your company incorporation in Singapore.
Choose Business Structure: Know the Risk
When creditors sue your company for the restitution of their dues, they will do their best to show the court that your company does not follow the criterion for that type of business.
Your problem starts if the court agrees with them and rules that your company is a partnership or a sole proprietorship. It puts your assets at risk.
On the other hand, if you unintentionally breach the corporate veil that the incorporation provides, it puts your assets at risk.
- A sole proprietor’s liability is unlimited. There is no separation between them and their business. It puts their assets at risk
- A limited liability partnership limits its partners’ liability. If you are responsible for its losses or debts because of your negligence or inaction, it is going to put your assets at risk
- A limited liability company offers the best protection. However, the risk exists if you are part of the company’s management.
Business Insurance
As you know, the corporate veil is not enough because it may fail. Then, how to protect personal assets? Experts advise you to take out appropriate or speciality insurance by your business type. Basic insurance policies include:
- Bonds: Depending on the risk involved, you can buy protection provided by the performance bonds for specific or all types of activities
- General/Product Liability Insurance: This type of insurance protects you against negligence or performance claims related to a product on sale. It does not cover claims against criminal activities
- Malpractice Insurance: This type of insurance contains a rider to cover ‘errors or omissions’ that protects a licensed professional serving the general public
- Commercial Property Insurance: These policies offer insurance coverage to commercial properties in a similar fashion to home insurance policies
- Home Business Insurance: These are for home-based businesses. You need to ask and make sure you can add it to your home insurance policy
- Insurance for employees: These cover employee compensation insurance, disability insurance, etc
- Business Owners’ Policy: This insurance policy combines various common insurance into one package enabling you to save money
Avoid Personal Loans
It is best not to rake personal loans/debts for your company. It is a tempting option when your business is not doing well. However, if it fails, it puts your personal assets at risk. It is far better to wait and use the time to strengthen your business’ finances.
Leverage Retirement Accounts
You can transfer money to your Special or Retirement accounts using top-up or CPF transfers. You will need to use Retirement Account if you are 55 or above. If you are below 55, you must transfer it to your Special Account.
Check out the maximum amount you can keep in these accounts. You can earn compound interest and tax relief from these accounts. Before deciding, t take stock of the inflation rate, interest rates, stock market volatility, and retirement plan’s performance.
It is important for newbie business owners to know how to protect personal assets. Experts tell you that you can achieve it, to a large extent, through business incorporating. The strategies and tactics presented here will help you do so to an extent.
Call us at +65-6536 0036 or email us at info@sbsgroup.com.sg if you want to discuss the matter with our company incorporation experts.
