How Do You Protect Your Personal Assets When Forming a Business?
Starting a new business is an exciting step, but it also comes with financial risks. One of the most important decisions you’ll make early on is how to protect your personal assets. Without the right setup and strategy, your property could be at risk. Fortunately, with thoughtful planning and legal guidance, you can reduce that risk and build a solid foundation for your business.
Whether you're forming a business in Anchorage, Fairbanks, or a remote village in Alaska, the same principles apply. Choosing the right structure and taking other protective steps can shield your personal property from potential liabilities. At the Law Office of Justin S. Eppler, LLC in Anchorage, Alaska, we can help keep your personal assets safe while building a business.
Choose the Right Business Structure
The legal structure of your business plays a huge role in how much personal liability you take on. Some structures provide more protection than others, and it's important to know what each option means for you. Here are some types of business structures that offer limited liability:
Limited liability company (LLC): An LLC is one of the most popular structures for small businesses in Alaska. It offers limited liability protection, meaning your personal property is generally off-limits to business creditors or legal judgments. It also allows for flexible management and tax options.
Corporation (C-Corp or S-Corp): Corporations are legal entities separate from their owners. That separation protects the personal assets of shareholders. While they come with more formalities and potential double taxation (in the case of C-Corps), the personal asset protection is strong.
Limited partnership (LP): In an LP, general partners have personal liability, but limited partners usually don’t. If you’re only investing and not involved in daily operations, this might be a good fit.
Professional corporation (PC) or professional limited liability company (PLLC): These are special structures available to licensed professionals like doctors or lawyers. They offer limited liability but also come with specific rules under Alaska law.
Choosing a structure with built-in liability protection is your first line of defense. It draws a clear line between business obligations and your assets.
Keep Business and Personal Finances Separate
Forming a legal entity is just the beginning. To keep your assets protected, you also need to treat your business like a separate entity in practice, not just on paper. Here are a few best practices for separating finances:
Open a dedicated business bank account: Don't mix business income with your personal checking or savings. A separate bank account helps prove your business is truly independent from you.
Use a separate credit card: A business credit card keeps your purchases distinct and builds a financial history for the company.
Track income and expenses clearly: Use bookkeeping software or hire an accountant to make sure your records are clean and easy to understand.
Pay yourself a salary or draw: Instead of pulling cash whenever you need it, set up a regular payment method to draw money from the business account.
Courts may disregard your liability protection if you treat your business like a personal piggy bank. This is called “piercing the corporate veil,” and it can expose your personal property to lawsuits or collections. Maintaining clear financial boundaries helps you avoid that risk.
Get the Right Insurance Coverage
Even the best structure and clean records can’t prevent every threat. Insurance adds an extra layer of protection if something goes wrong, like a lawsuit or property damage. Here are some insurance policies that help shield personal assets:
General liability insurance: This coverage protects against injuries, property damage, and other claims that may arise from operating a business.
Professional liability insurance (errors and omissions): If your business offers advice or services, this protects you from claims of negligence or mistakes.
Commercial property insurance: Covers your business equipment, tools, and workspace in case of damage or loss.
Workers’ compensation insurance: Required in most cases if you have employees. It protects against medical expenses and lost wages resulting from workplace injuries.
Umbrella liability insurance: Adds an extra layer of coverage beyond your standard policies. It can be useful if you face a large claim that exceeds other limits.
Insurance won’t stop a lawsuit from happening, but it can help pay legal costs and reduce your personal financial exposure if one arises.
Use Strong Contracts and Agreements
Many legal disputes stem from misunderstandings or informal deals. Strong, written contracts help avoid those problems and protect you if a conflict ends up in court. Here are some ways contracts support asset protection:
Define roles and responsibilities: If you have business partners, a detailed partnership or operating agreement keeps everyone on the same page.
Clarify payment terms: Contracts with customers or clients should spell out what’s expected, when payment is due, and what happens if it’s late.
Limit liability through clauses: Use disclaimers, indemnity provisions, and limitation-of-liability language to reduce potential claims against your business.
Protect intellectual property: If your business relies on trademarks, copyrights, or trade secrets, contracts should protect those assets and restrict how others can use them.
Work with vendors and contractors: Written agreements reduce disputes and create a paper trail if someone breaches their end of the deal.
Working with a local attorney to draft or review your contracts gives you peace of mind and helps you avoid costly mistakes.
Avoid Personal Guarantees
One common way business owners accidentally expose their personal assets is by signing personal guarantees. These are agreements where you promise to repay a business debt if the company can’t personally. Here are a few helpful tips to limit or avoid personal guarantees:
Build business credit: The stronger your business credit profile, the less likely a lender will require a personal guarantee.
Negotiate with lenders: Some banks and suppliers may be willing to waive a personal guarantee after a year or two of good payment history.
Watch what you sign: Read all loan documents, lease agreements, and vendor contracts carefully. Look for personal guarantee language and ask to revise or remove it if possible.
Seek alternatives: In some cases, you may be able to provide a higher down payment or collateral from the business rather than signing personally.
While it’s not always possible to avoid personal guarantees, being aware of them helps you make more informed decisions that protect your personal property.
Protect Your Intellectual Property
Your ideas, designs, and creations are often just as valuable as physical property. If you don’t protect them properly, someone else could use them, or claim they belong to them. There are a few important steps you should take to protect intellectual property:
Register trademarks: If you have a unique business name, logo, or slogan, consider registering them with the U.S. Patent and Trademark Office (USPTO).
Secure domain names and handles: Lock down your brand online by reserving key web domains and social media profiles.
Use copyright notices: If you create content—like videos, artwork, or software—include copyright symbols and dates to show ownership.
Apply for patents (if applicable): If you invent something novel, a patent protects your exclusive rights to that invention.
Have IP agreements in place: Contractors and employees should sign agreements stating that anything they create for the business belongs to the business.
When your intellectual property is clearly owned and protected by the business, it strengthens your legal position and helps keep your personal identity separate.
Personalized Legal Guidance
Protecting your personal assets when forming a business isn’t something to leave to chance. Taking time to set things up properly with a business law attorney gives you the freedom to build your business without putting everything on the line. At the Law Office of Justin S. Eppler, LLC, we serve clients in Fairbanks, Juneau, Wasilla, Palmer, and Anchorage, Alaska. Call today to get started with a consultation.
