A Takeaway from Ferguson – Protection for Small Business Owners

By Brittany Robinett

FergusonUnless you’ve been living under a rock, you have undoubtedly heard about the racial tension and civil unrest surrounding recent events in Ferguson, MO. On August 9th, Michael Brown, an unarmed black teenager, was shot fatally shot by a white police officer, Darren Wilson. Protests emerged amidst numerous controverted facts and unanswered questions, sparking cries of racism in the American justice system. Since the shooting, local entrepreneurs began to experience a decline in business. As tensions escalated, many were forced to board up windows and shut down.

On November 24th, the St. Louis County prosecutor announced the grand jury’s decision not to indict Wilson, triggering a local and national uproar. Riots ensued, leaving many small businesses looted, vandalized, or destroyed. Many business owners were by themselves, because they lacked the financial resources necessary to recover from such a catastrophic loss. In a few short minutes, many livelihoods were sacrificed in a community that had already lost so much.

The events of Ferguson, MO illustrate just how easily small businesses can bear the costs of civil unrest. Ferguson businesses find themselves asking, “How much does it cost to recover? Who bears the costs?” The tumultuous events have left many business owners wondering how they would cope in the same situation. Protests and riots are not as easily insured against as natural disasters and fires, because there’s no way to assess the risk and potential loss stemming from human emotion or civil discord. However, while those risks are unforeseeable and incalculable, they are not completely uninsurable.

The smaller your business, the more challenging and costly it is to prepare for extreme situations. As a business owner, it is crucial to consider all contingencies affecting your business – no matter how unlikely they might be. It is important to consider those protections available to you. Hopefully, some of the following steps will provide some guidance on how to combat the risks of a civil uproar.

Investigate your insurance coverage.

First and foremost, it is important that you know what exactly your insurance covers and what coverage options are actually available to you. Many small businesses are eligible for a “Business Owner’s Policy” (BOP), which resembles a bundled policy of property insurance and general liability insurance. Under a BOP, there might be a way to recover lost income and expenses incurred when business comes to a halt as a result of some covered event. BOPs can include “business interruption insurance,” which reimburses a business for some of those losses. This business income coverage is not automatically triggered with the mere passing of a covered event. Certain requirements must be met, such as severe physical damage to the property that either prevents the business from operating or prevents customers/employees access, or a government-imposed curfew or restriction that keeps people from accessing the business.

As a business owner, you want ask your agent what events and harms are specifically covered under your current policy. Ask whether coverage includes business interruption insurance, and if it does, find out whether your business is eligible. Even where you are eligible, it is important to determine whether your policy covers only specific, named events or it covers all events that might result in harm to your business. If your insurance does not offer such coverage, it might be worth shopping around to determine whether another policy might better protect you and your business.

Backup your data.

Particularly where so much business data is stored electronically, it is crucial to back your data to an offsite location. Even absent a risk of rioters stealing or destroying your business, it is incredibly unwise to have all of your business’s electronic data stored to one physical location. There are a number of online backup services for small businesses. If you do not already have a system in place, you would be very wise to research which option suits your business and your budget best. (Click here to review some of the top-ranking systems.)

Budget for emergencies.

It never hurts to budget for emergencies. Depending on your financial situation, “budgeting” might mean investing at the outset or storing funds in case necessity arises. Should you invest beforehand, you might be wise to install roll-up doors or security grills. Doing so will provide you a quick-and-easy mechanism to board up your business, should the situation arise. Should you elect to put off “boarding up” unless necessary, make sure you have funds stored away to purchase plywood and other necessary materials to secure your place of business.

Invest in a security system.

In the context of emotion-driven people, do security systems serve a significant deterrence function? Maybe not. However, being able to identify a culprit might enable you to pursue civil damages from harms caused. If alarms enough are not to dissuade someone from intruding, video surveillance might provide you a remedy for that intrusion. Additionally, given that social media drives today’s news outlet, surveillance might provide some disincentive.

Ultimately, no state, no city, and no business are immune to the risk of a civil uproar. Like any storm, once you are in the path of destruction, you are bound to get hit. All you can do is have faith in the safeguards you have in place and hope for the best.

Bexley Law Firm, LLC

About the Author:  Brittany Robinett is a rising third year law student at the Georgia State University College of Law.


Covering Your Assets – Steps to Guarding your Goods from Creditors

By Brittany Robinett

When you own a business, you often juggle multiple jobs: from marketing, to hiring, to bookkeeping, the list can seem never-ending.  Add the demands of personal life, and wearing several hats can easily blur lines between personal and business transactions.  Without an established asset protection plan, personal assets become an easy target for business creditors.  There are many ways to make personal assets appear “unattractive” to creditors.  Remembering four keywords can help prevent unnecessary risk to your personal assets:  structure, separate, research, and insure. 

1.     Structure your business as a separate legal entity.

Injured Piggy Bank WIth CrutchesMany minds equate asset protection with establishing a business as a separate legal entity.  Doing so distinguishes your business as its own legal “person,” capable of incurring its own debts and liabilities.  While business creditors can go after the business’s assets, personal creditors cannot.

When forming a business entity, most owners either form an LLC (“limited liability company”) or a corporation (usually an “S Corporation”), because they provide the most extensive liability protection for small businesses.

An LLC is an “informal” entity, operating more flexibly than a corporation.  “Limited liability” means that creditors cannot hold an owner liable for more than the amount he or she has personally invested.  LLCs are the more popular structure for small businesses, given the low start-up cost, minimal paperwork, and pass-through tax treatment.  However, this structure is not always appropriate, given the limited duration of LLCs and the crystal-clear distinctions required between the LLC’s affairs and the owner’s affairs.

A corporation is more “formal,” requiring the business to satisfy several technicalities, such as mandatory reports, meetings, and shareholder limitations.  Usually, an S Corporation is a more appropriate structure for small businesses, given the high tax payments associated with C Corporations.  Owners are generally not held liable for debts or liabilities incurred by the business.  They demand higher start-up costs and compliance with strict structural guidelines.  However, excess profits are entitled to tax benefits that LLCs do not offer.

When forming a business entity, attorney consultation can help you assess the positives and negatives of each structure and determine which formation best serves your interests.

2.     Separate personal accounts and business accounts.

Certain things in life are better left unmixed –bleach and ammonia, for example.  Comingling funds is equally ill-advised, as creating a business entity does not immunize an owner’s personal assets from business creditors.  If your business creditors and your personal creditors are the same people, you’ll likely find yourself treading dangerous waters.  For this reason, any debts or judgments that you are personally responsible for ought to be satisfied entirely by your own pockets and assets.   Additionally, any debts or judgments incurred by your business should be satisfied solely by the business.

To simplify the separation, create an account devoted purely to handling business transactions.  Funds in that account should NEVER touch personal expenses.  Likewise, funds within any personal account should be kept separate from business expenses.

3.     Research available asset protections.

As trivial as it sounds, it is important to regularly inventory all of your assets, as well as the values and debts associated with them.  Doing so enables you to identify which assets might be exposed to creditors.  Once familiar with your weak spots, you can research which assets are exempt from creditor action by state or federal law.

Assets falling within the business entity may only be pursued by business creditors.  Personal assets that are not exempt may be pursued by personal creditors.  To protect these personal assets, you can set up protective entities, such as trusts.  A trust places asset ownership into another’s hands for your intended beneficiaries.  While assets are removed from your ultimate control, they may be removed from creditors’ reach.

4.     Insure both personal and business assets.

Asset protection does NOT substitute the protection that insurance offers.  The two are unique and serve separate functions.  Asset protection helps deter creditors, but it is not always 100% effective.  Should creditors pursue your personal assets, insurance pays for legal defense in a lawsuit.  Types of policies regularly considered are liability insurance, property insurance, and umbrella liability insurance.

Be certain to have an attorney look over any policies prior to signing.  Attorneys can determine whether you are getting the best coverage available and whether your assets are effectively protected.

Bexley Law Firm, LLC

About the Author:  Brittany Robinett is a second year law student at the Georgia State University College of Law.