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Writer's pictureZemilah Binti Mohd Noor

Understanding Business Assets and How to Protect Them

Updated: Apr 6, 2021

As a business owner, are you aware of all the assets that your business owns? How can you protect them?

Asset protection provides defence against the danger to personal and business property, such as mortgage obligations, lawsuits by creditors, damages payments, liability, and many more. The idea is to prevent rather than cure. Thus it would be best to look into protecting your business asset as one of the first steps once you've established your business.


What Are Business Assets?

Business assets are items that your business owns, creates or benefits from. They can be in the form of cash, materials, your product stock, equipment, property and intellectual property.

An appraiser can determine the value of your business assets. There are two (2) types of business assets namely tangible assets and intangible assets.

Business assets include two (2) sections which are current assets and noncurrent assets.

We will delve further into the types of assets and sections below.

  • Tangible Business Assets

Tangible assets are physical assets that have a monetary value. They can include property, building, equipment and vehicles.

It is easy to determine your tangible assets' value, as there are well-established models to assess their market value. Tangible assets are listed on the balance sheet.

  • Intangible Business Assets

Intangible business assets are "things" that do not have a physical form. One of the main intangible business assets is your business's intellectual property. They are creations from someone or a team from your company that may include trademarks, patents, designs, copyrights, names and images.

Other forms of intangible business assets can be your business knowledge, reputation and name recognition.

While intangible assets are not listed on the balance sheet, they are of high value as they can equate to higher business valuation.

  • Current Assets

Current assets are short-term assets with cash value and expected to be converted to cash within one (1) year. They include your money, inventory, prepaid expenses and accounts receivable.

Current assets are differentiated from other resources as they are used for your day-to-day business funding and expenses.

  • Noncurrent Assets

Noncurrent assets are long term assets such as land, property, equipment, and long-term investments made by your business. Their full value will not be recognised for another year.

You can choose to spread your noncurrent assets' costs over a long period as they have a long "life-span". Both tangible and intangible assets, such as trademarks, can fall under noncurrent assets.


How Do You Protect Your Business Assets?

First of all, you need to be aware of all your assets. You can begin by documenting them all and then listing potential pitfalls and threats. To reduce your risks, you should carry regular checks and risk assessment.

Wherever possible, you can restrict access to your assets, meaning only particular people can access your cash flow or your data.

At the same time, remember to register your intellectual property. You can do this by getting trademarks and patents. Once you have done so, you can enforce your intellectual property rights.

You should also develop a business continuity plan and build your business to be financially resilient. You can read more about building a financially resilient business here.

Additionally, there are other legal ways to protect your assets such as the following:


Insurance

An important step you must take is to insure your assets. Asset insurance will help you when you come across unexpected problems and have a sudden need to replace your assets. For example, if a property gets burned down or your stock gets stolen, it needs to be replaced.

There are many types of insurance you can secure to protect your assets. These include:

  • Fire – Protection for loss incurred or damaged caused by a fire.

  • Burglary – Protection for loss incurred or damage caused by a burglary at your place of business.

  • Machinery Breakdown – Protection for loss incurred as a result of a machinery breakdown.

  • Money – Protection for loss of money in case of a robbery. It can also include cases where the money goes missing during day-to-day operations, for example, while in transit from your place of business to the bank.

  • Consequential Loss – Protection for loss incurred due to an unfortunate event, for example, a fire or flood, which leads to disruption to your business.

  • Vehicle – Protection for any motor vehicles you own for loss or damages in an accident. Another form of vehicle protection is a legal liability to a third party.

  • Workmen Compensation – Protection for your workers in case of any accidental bodily injury or disease during employment.

  • Public Liability – Protection for members of the public if injured while on your premises or through your products.

The types of insurance available can vary from company to company and state to state. You must make comparisons and weigh out your options before deciding on suitable plans for your business.


Asset Protection Planning

An asset protection plan refers to legal strategies to protect business assets against a potential claimant. It can also help protect your business assets from being seized or help prevent your assets' seizure after a court decision.

There are several structures you can consider, including corporations, partnerships and trusts, which are explained below:

  • Corporations - A corporation is a legal entity that is separate and distinct from its owners. Corporations can do a majority of things a person can do. For example, a corporation can enter a contract, own assets, make a loan, and notably, they can also sue, and another party can sue them in this case. Another important part of corporations is limited liability, whereby shareholders may take dividends and profits but are not personally liable for the company's debt.

  • Partnerships - A partnership is an agreement between two or more parties to manage a business and share its profits. In a partnership business, all partners share liabilities and profits equally. Depending on which location your company operates in, you may receive tax benefits for a partnership.

  • Trusts - A trust is a fiduciary relationship. The "trustor" gives the "trustee" the right to hold assets on behalf of a "beneficiary". Trusts are formed to provide legal protection for the trustor's assets. It ensures the assets are distributed according to the wishes of the trustor. Trusts are flexible in the way that they can be used for a variety of purposes.

The structure that is best for you will depend on the business assets you own and the vulnerability of you or your business against creditors. A lawyer can best help you decide on what is a suitable structure for your business.

Keep in mind that asset protection planning is not a sole option; instead, it should act as a supplement to your insurance.

Intellectual Property Protection

The first intellectual property your business owns is your business name. Online, a domain name is another form of intellectual property. However, your business name does not automatically secure a domain name for you online. Thus, one of the first things you must do is secure the domain name you desire for your business.

Aside from that, the following are other ways you can protect your intellectual property:

  • Copyright – Protects writing and recordings such as books, works of art, photography, videos and sound recording.

  • Design Right – Protects configuration and shape of three-dimensional products.

  • Trade Marks – Protects your brand name and business brandings such as logo, slogans and colour combinations.

  • Patents – Protects inventions, products and processes.

Do bear in mind that you can only achieve the above protections if you can prove that the work is an original piece from your business.


The Bottom Line

A word to the wise:

Although you own a business, you must keep your personal assets and business assets separate. Doing this protects you from running all your assets to the ground should either your personal or business entity run into a problem.

With the multiple ways and legalities surrounding protecting your business, it is vital that you secure a lawyer who is an expert in the field and familiar with the laws in your business location. Coupled with your newfound understanding of business assets, you will be on your way to ensure the best protection for your business.


Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ, and thus require specific legal advice. Please feel free to contact us for complimentary legal consultation.


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