Many business start-ups are under pressure to stay afloat during gestation. Data from the Lagos Chamber of Commerce (LCC) show that most of them close shop in the second year.
So, it is critical that start-up owners protect their personal assets in case their businesses fail.
Here are some of the pieces needed to keep your individual assets and personal finance separate from business dealings.
Ownership
Establish the business as a corporation or limited liability company rather than partnership or sole proprietorship. Even at that, experts believe that it is not enough to assume that setting up a separate entity automatically protects you.
If a business owner uses it as a personal draw down bank, paying for expenses out of the business account, then someone who joins the business in a suit may establish that you and your business are one and the same entity.
Things of value like personal home and investment could be fair game for settlement of liabilities where business owners fail to respect the formality of the business entity by keeping proper books and, in the case of corporations, holding annual meetings.
Bring on minority stakeholder
Legal experts advise that bringing on board a minority stakeholder, who is not related to the business owner by marriage or blood, offers protection to personal assets and finance.
Having a minority owner who holds even 2 per cent of the company allows the business owner to make a stronger case for preserving the entity in lawsuits.
Take up proper insurance policy
Lawyers who specialise in property management advise that a basic liability business insurance policy will put the business owner in good stead.
According to Kingsley Snomi, a property and real estate attorney, one may need other specialised types of insurance, depending on one’s industry.
In his view, industry associations and an insurance broker familiar with one’s type of business can help determine coverage levels that protect the business.
Maintain fewer assets to make seizure difficult
The fewer assets the business owns outright, the fewer that are subject to seizure. Where possible, it is advisable to own nothing but control everything. This could be achieved through leasing large assets for production or operations.
For instance, a baker of confectionaries does not need to own a bakery to bake. All he needs to do is pay for one from where he can bake his brands. By so doing, he spares himself costs and inconvenience.
It is a question of comparative advantage where the individual or organisation concentrates on indispensable basic assets while accessing others on lease.