Follow these steps to keep your personal assets safe from liability associated with your business

Whether you are just starting out as a construction business owner, or if you have owned your own business for several years, it is important to make sure that you take the steps necessary to legally and contractual separate your personal assets from your business assets. Such separation is crucial to shielding your personal assets from any judgments or claims attributed to your business in the unfortunate event that your business is sued or goes bankrupt. Personal assets include things like your home, vehicles, boats, guns, bank accounts, brokerage accounts, and retirement accounts. Business Assets include clients, employees, business relationships, social media reputation, equipment and your business’s process and procedures. In order to keep your personal assets safe from liability associated with your business, it is important to legally separate the two categories of assets, implement the correct contract provisions, and obtain the proper scope of insurance coverage.

#1: Separating Personal and Business Assets

One major way to ensure that your personal assets are protected from any liability related to your business is to ensure that the two categories of assets are separated as a matter of law. Operating a business as a Sole Practitioner, or sole proprietor, creates the most opportunity for exposure to personal liability and thus, your personal assets. Alternatively, registering your business as a Limited Liability Company (LLC) or as a corporation can act as an added shield for owners from personal liability. The creation of an LLC allows its owner to have a completely separate entity for their business assets. An LLC is both easy to set up and easy to manage. Registering for corporation status is one of the strongest protections for business owners, but it also requires double taxation in exchange for that added protection. Additionally, the protections that are afforded to either a corporation or an LLC vary by state so consulting an attorney before choosing the right place to set up your business is likely the best course of action. Registering a “DBA” or “Doing Business As” offers no personal protection.

#2: Asset Protection through Contract Language

Another way to protect your personal assets is to ensure that you create strong contracts with everyone with whom you do business. This includes clients, subcontractors, general contractors, employees, vendors, and service providers. It is especially important to pay attention to the language of the contract that you are signing and ensure that you will be able to fulfill your commitment regardless of what happens to your business during the term of the contract. For example, if the contract requires that you pay a company $100,000 over two years, it is important that you are able to make that payment no matter what the status of your business is at the end of that two-year term. Be especially careful when signing contracts with software providers.

One contract clause to be cautious of, and that should be avoided, when attempting to ensure personal asset protection would be any clause that assigns personal liability to the individual signing the contract. Unless it is a bank or a surety you should be very reluctant to agree to giving a personal guarantee. A clause of this nature could hold the individual who signed the contract personally liable for claims made pursuant to the contract even if that individual intended to sign the contract on behalf of a business and not in their own personal capacity.

#3: Insurance

 While insurance is a requirement for most construction projects, it is especially important to ensure that the insurance policy is reliable and specifically tailored to meet the needs of your company and your projects. By having the appropriate insurance coverage in place, it is easier to ensure that both your personal and business assets are protected even in the face of unexpected damage or expenses. In addition to making sure that you obtain the full scope of protection possible through insurance, it is also essential that every state where your business does work is listed on the policy. Insurance policies for construction contracts should include the following:

• General Liability Insurance generally protects from financial losses that arise from lawsuits filed by third parties, such as property owners or workers injured on the job site, and covers the cost of legal fees, settlements, or judgments. General Liability Insurance can also offer protection if you cause damage to the property or other things while performing your work at the site; however, it will generally exclude damage to your work if you caused that damage or it is a result of your faulty construction.

• Property Damage Insurance generally covers damage to property caused by the contractor’s work, or the equipment used on the job site.

• Builder’s Risk Insurance generally covers damage to a building or structure during construction or renovation and protects against losses resulting from fire, theft, vandalism, and other hazards.

• Workers Compensation Insurance generally provides coverage for medical expenses and lost wages for employees who are injured on the job while also protecting the employer from liability claims related to workplace injury.

• Professional Liability/Design Insurance generally provides protection for design professionals, including architects, engineers, contractors, against claims of negligence, errors, or omissions in their professional work related to mistakes or oversights made in the design process such as errors in specifications, faulty design, or failure to meet regulatory requirements.

• Umbrella Insurance generally provides additional coverage beyond the limits of a primary insurance policy and is designed to protect businesses from major liability claims that exceed the coverage limits of their existing policies.

• Completed Operations Insurance generally protects against claims that arise from completed works or projects, specifically those related to bodily injury or property damage that occurs after a construction project or other service has been completed. This type of insurance is usually included in a general liability or an umbrella insurance policy and may have limits or exclusions, so it is important to carefully review the policy in full to understand the scope of coverage.

• Contractors Equipment/Installment Insurance generally provides coverage for contractors’ equipment and machinery, as well as the cost of installing or removing such equipment and is designed to protect contractors from financial losses resulting from damage, theft, or other perils that can affect their equipment.

• Floater Insurance generally provides coverage for movable property that is used in construction projects, such as materials and supplies, and is designed to protect against any loss or damage that may occur while such property is in transit, storage, or in use at a job site.

In conclusion, there are a number of ways to ensure that both your personal and business assets are protected from any liability that may be associated with your business. However, navigating the laws, methods, and best practices for asset protection can be complicated. If you have assets of any kind, whether personal or business, it is critical to ensure that these assets are afforded the maximum amount of protection possible under the law. Contact the experienced attorneys at Galvanize Law Group for more on how to make sure you and your assets are protected.