Take care of your Business / Practice and it can take care of you
Business and Practice owners have many issues they deal with – cash flow analysis, employee retention, retirement planning and litigation risk. We are focusing on the last issue and how talking to your attorney can help protect your business.
One method for reducing liability is to incorporate or create an entity that acts as the businesses “alter ego”. Think of this as a protective shell you create that surrounds the business and all of its assets.
When we discuss “incorporating”, this means any legal, legitimate business entity, including C-Corp, S-Corp, LLC and Partnerships… the list goes on and on. The type of entity will be determined by additional business factors which are beyond the scope of this material.
Why is this important? Consider the scenario where a dental patient, having been sedated as part of a routine procedure is left unattended to allow the sedation to wear off. You and your assistant are attending to other patients, the patient disregards your instructions to remain in the chair and in an attempt to stand up, falls and breaks his collar bone. The patient sues you for not attending to him until he had fully recovered from sedation.
If your business is not incorporated, this injured patient can go after your personal and business assets to satisfy any judgment they may get from the court. In other words… your home, investments, automobiles, jewelry, collectibles, family heirlooms and business assets can be used to pay if the patient wins their claim. This is frightening scenario! However, if you wrap an entity around your business, the patient is typically limited to the business cash flow and assets. Your personal assets may not be included in the lawsuit.
This is why it is called ‘limited liability’ when a business owner uses a business entity to do business.
What applies to all entities… as the business owner, you must respect and maintain the integrity of the entity. This is something that should be reviewed each year. You need to make certain you use the business for business purposes only, including cash flow. In other words, you should not be paying personal expenses out of business accounts. Also, make certain you follow the organizing documents. By-Laws and Articles of Incorporation will require an annual meeting of owners. Take notes at this meeting and add these notes to your annual meeting review file to prove you are following your organizing documents. Some business owners even write a letter or email to timestamp and document.
Finally, it is good business practice to keep a Book of Records that document the more significant business decisions, such as adding a new partner or purchasing a significant piece of equipment.
As part of our comprehensive financial planning process, we can help clients address this and many other business planning issues along with the help of their legal counsel. If you would like to discuss in more detail, please feel welcome to connect. 704.248.6771 - NaviPath@wradvisors.com
Waddell & Reed and its representatives do not offer legal advice. This is meant for educational purposes only. It should not be considered individual advice, nor does it constitute a recommendation to take a particular course of action. Please consult with your legal professional regarding your personal situation prior to making any financial related decisions. 08/19