One of our clients, a manufacturer, was becoming more and more profitable. While the additional income was cause for celebration, it also warranted concern: The company was accumulating a lot of cash in its operating business.
It’s hard to imagine an influx of cash becoming an issue for any business. However, given that a business’ assets are subject to creditor claims and lawsuits, cash can create exposure to risk. If our client were to be sued—which could happen in the unlikely event that one of the machines they were selling caused damage—their cash reserves could end up on the table.
To protect our client’s cash, we helped them get the assets they didn’t need for their business into a separate entity: an investment partnership. This setup allows the business to distribute excess cash out to its partners, who then make contributions to the investment partnership.
The true beauty of this solution (in addition to protecting the business’ cash) is that the business can get its money back from the investment partnership if needed. To do this, the investment partnership makes distributions to the partners, who then put the money back into the operating entity—i.e., the business.
What’s more, holding the cash in an investment partnership instead of in each partner’s bank account protects the partners from spending one another’s money. The investment partnership can also invest in the market or a money market fund to maximize the cash’s value.
Our client implemented this solution back in 2021 and it’s still working for them in 2023. In fact, we’ve brought this solution to several clients. Any business that’s concerned about creditors knocking on their door—whether it provides professional services or manufacturing—could benefit from it, especially since it’s relatively easy to accomplish.
Your business is likely your biggest asset; it’s critical to protect it. With combined expertise in tax and wealth, the InTandem team can help you assess the risks inherent to your business and take steps to mitigate them.
To find out how our team could help you strategically protect your business and assets, contact us today.