business asset protection plan

[boston09]

i attended a class on asset protection in vegas. the guy was giving many examples on how relatively innocent accident might result in a law suit the outcome of which might be your business assets taken, even if you had business insurance. and therefore was talking about setting up LLCs, corporations, partnerships… in such manner that no law suit would be successful against you. does anybody use anything like that? is everyone just an S-corp or LLC? is anyone using a combination of tools, say business assets be under one entity and liabilities in another, or LLC is one of the general partners of a corporation. If you using anything like that, could you shine some light on this?

 

[bodegahwy]

Sounds like an attorney selling services to me.

1. Find a local attorney who does small business law and a local CPA who you trust.
2. Do what they tell you.

All the corp entities provide essentially the same protection. If there is a lawsuit, you will be sued individually anyway which is why your business insurance should include you and any other owners as named insured. If you have not properly set up the entity it can be tossed. If you comingle your personal finacial life with your business, it can be tossed. (Aside from the tax liability, this is a major danger of paying personal expenses with your business)

The other way people lose everything despite insurance is when the loss exceeds the coverage. If you are sued and the judgement is greater than your coverage… guess what, the business pays. Make sure your limits are high enough! Higher limits are relatively cheap. This is not the place to save a couple of hundred dollars.

 

[piemaker2007]

That layering you are describing sounds really complicated for small business owner because you have to manage each of them as a separate entity (meaning financials, taxes, meetings if required in your state, paperwork for transactions between enitities, IRS stuff for each entity, etc). For example I had an LLC for a while. I sold and rented some equipment to the LLC. I couldnt just take the money and start using the equpment. I had to make a paper trail that detailed the transaction, create recipts, cut checks, it was time consuming and a little weird since i was both sides of the transaction. For each entity create and layered in you will need separate articles of incorporation or by laws as your state requires. Some states require certain entities to meet with their boards and require minutes to be archived.

As a small business I see this as potentially increasing your costs in the long run and potentially setting up more opportunities to do something that would allow the courts to peirce your veil protection making not only the business assets you want to protect at risk but also your personal assets.

I’d do waht bodegahwy suggests and explain your concerns to a local attorney and cpa that understands small business and they can suggested a course of action, probably the best few hundred dollars you can spend.

With proper planning you can minimize any risk to your assets but nothing will give you 100% risk free protection simply because when it goes to court you are introducing a thrid party opinion and interpretation. While I don’t personally like to do business as a sole proprietor I know people who have for 30+ years in different industries but they all took steps to minimize thier personal risk.

Bryan