Asset Protection

Asset protection is the process of securing one’s wealth. Financial planning includes asset protection, which is meant to protect assets from creditors. 

 

A Sole Proprietorship vs. A Partnership, Corporation, Or LLC

Take a look at how different types of business ownership compare. Let’s compare the pros and cons of sole proprietorships vs. LLCs, LLCs vs. corporations, and sole proprietorships vs. corporation vs. partnerships. Along with tax issues, asset protection and lawsuit protection are also important considerations. A lawsuit involving an asset comes under asset protection when someone sues the owner. Is that type of ownership protected from personal lawsuits? A lawsuit protection is necessary when someone sues a business. When a customer or supplier sues a business, what happens to the owners? The quick answer, as you will see, is that the LLC typically provides the best protection from both forms of liability.

Protecting your assets requires a carefully crafted plan that is tailored to your particular needs and your future goals. There is no one-size-fits-all solution when it comes to protecting your hard-earned assets. Thus, individuals who wish to protect their assets from predatory claims have no shortage of options today. As the litigation climate in America becomes more litigious, the asset protection field continues to expand and diversify. Specialists in asset protection can now offer their clients a range of options to safeguard almost any type of asset.

The most expensive type of business entity is the sole proprietorship or partnership

 

Among the most commonly used asset protection instruments is a business entity. There are different types of business ownership, including sole proprietorships, general partnerships, corporations, and limited liability companies. The easiest and most cost-effective business entities are typically sole proprietorships and general partnerships. They are less effective at protecting assets, however. When someone sues the business, they are by far the most expensive.

Professionally drafted corporations and limited liability companies

Corporations are legally drafted business vehicles. It is set up in such a way that it can exist in perpetuity; that is, unless the existing board dissolves it or if the annual renewal fee is not paid. Often, asset protection plans include a limited liability company, or LLC, because of its versatility. An asset protection expert will assess your business’ nature. They will examine the kinds of assets you wish to protect. They will then determine the degree of liability protection for those assets before making recommendations.

Corporations and limited liability companies can protect you from lawsuits if they are properly drafted. But if they are not properly structured, you are at risk. This is why you should hire a professional. We have witnessed hundreds of instances where our finely-tuned and crafted entities have protected our clients since our organization was founded in 1906. To discuss your needs, call 1-888-779-6766.

 

Partnership vs. Sole Proprietorship

Sole proprietorships and general partnerships are typically less expensive to form than corporations and limited liability companies. A sole proprietorship is a company made up of only one person. You and you alone fund the business and make all of the business decisions. Partnerships usually involve at least two people. The owners usually have a financial investment in the business and participate in the decision-making process. Both are relatively easy to set up with little paperwork involved. Most states do not even require sole proprietorships to be registered with the state.

Nevertheless, sole proprietorships and general partnerships offer very little asset protection or lawsuit protection. A sole proprietorship, for example, is not considered a separate entity from the personal assets of its owner by the U.S. government. Due to this legal ambiguity, it is much easier for a judgement creditor to seize assets. However, it is bad for the legally vulnerable business owner. The creditor can reach both the business assets and the personal assets of the sole proprietor. One solution is to obtain adequate insurance coverage. It is common for insurance policies to have ceilings that might not be enough to cover the demands of covetous plaintiffs. Policies without limits are difficult to acquire. Moreover, they require a lot of money to maintain. Insurance policies also have a lot of exceptions. Companies use these exceptions to avoid paying claims.

Disadvantages of partnerships

General partnerships have their own set of challenges. In most states, you share responsibility for your partners’ business actions and decisions. Whether you agreed to the partnership or not is irrelevant. You may not even be aware of it. Consider the case of your partner taking out a business loan without telling you. Even if your partner pocketed all the money, it is your responsibility to make sure that the loan is fully repaid. Let’s say the loan isn’t fully repaid. A judgement creditor wins a lawsuit against your business. In turn, the court can give your creditor access to your business and personal assets for the purpose of repaying the loan.

As a business owner, you may be attracted by the ease and low cost of setting up a sole proprietorship or general partnership. Be sure to weigh the advantages and disadvantages of each type of business against how much asset protection it offers. You may be surprised to learn that the old adage is true: you get what you pay for-or, in this case, you don’t get what you didn’t pay for, which is adequate asset protection for your business and personal assets.

 

Sole Proprietorship vs. Corporation

Corporations are separate from their owners. In a sole proprietorship, however, the business and the owner are the same. As we compare the partnership with the corporation, the results are similar. There is no legal barrier between owners and partners in a partnership.

A corporation is a business entity that issues stock. Shareholders elect the corporation’s board of directors, which then elects the corporation’s officers, who are then authorized to conduct its day-to-day business. The officers of a corporation are usually the president, vice president, secretary, and treasurer. The board of directors of big corporations usually consists of a variety of officials. In most jurisdictions, one individual can fulfill the role of a corporate director and hold all other corporate positions at the same time.

Owning stock in a corporation can provide you with protection from business lawsuits. Creditors will therefore think twice before suing a corporation. In contrast, with a sole proprietorship or partnership, suing the business also means suing the owners.

Personal and business lawsuits

There are two sides, the business side and the personal side. When a business is sued, the corporate structure can provide a wall of protection against the personal assets of the shareholders. But what if the lawsuit is not business-related, and a shareholder is sued personally? In the event that a judgement creditor wins a personal lawsuit against an individual who owns shares in a corporation, that creditor can seize those shares. Those benefits can then be claimed by the creditor. A creditor who owns more than 50 percent of the shares can effectively control the corporation and its assets.

 

 

How can this be solved? Is it possible to get around this liability when someone sues you personally? A solution would be to place your shares of stock in the corporation in an asset-protecting instrument. LLCs and trusts are examples of asset protection instruments. Legal tools such as these can prevent judgement-creditors from accessing shares. However, some of these asset protection instruments may not be allowed to hold shares issued by certain types of corporations (such as an S-Corporation). This type of set-up has its own tax issues and regulations. Due to these reasons, you should be extremely cautious when using a corporation as an asset protection business entity. Before making any decisions, seek the advice of a knowledgeable asset protection professional and explore other types of business entities.

 

LLC vs. Sole Proprietorship

As with a corporation, an LLC is a separate legal entity from its owners. Therefore, if the business is sued, your personal assets can be protected. Thus, you don’t have to personally pay off the debts and other liabilities incurred by the LLC. In both comparisons of LLC vs. sole proprietorship and LLC vs. partnership, the LLC’s separate entity status makes it an excellent choice. A lawsuit against a sole proprietorship or partnership exposes the personal assets of the owner. This is not the case with LLCs.

 

Setting up an LLC is a solid asset protection strategy for small business owners. LLCs are also heavily used by businesses with substantial assets to legally separate one business unit from another. Basically, when one business unit is sued, the LLC protects the other business units within the parent company. When someone sues the parent company itself, legal provisions can protect the subsidiary LLCs and their assets.

Even though this protection is powerful, it is not absolute. Even if you commit fraud or wrongdoing in your business transactions, you may be held personally liable. As a rule, LLCs offer strong and reliable asset protection.

How to maximize your LLC’s protection

Maintaining your LLC as a separate entity is essential in order to maximize these asset protection benefits. Separate your LLC records and finances from your personal records and finances. An absence of this clear line of distinction may be enough to convince a court that the LLC is nothing more than your alter ego. As a result of the commingling of assets, the court may allow a judgement creditor to reach into your personal assets to settle a claim against the LLC.

Don’t pay your personal light bill with LLC money, for instance. You can pay yourself a salary from your LLC by moving money from your LLC bank account into your personal bank account. You can then pay your light bill from your personal account.

 

Additionally, whenever possible, avoid personally guaranteeing loans or liabilities your LLC takes on. Any debt you guarantee personally for an LLC or other business entity is your responsibility in most states. It can be difficult for your LLC to obtain a large loan on its own if your business is just starting out. For this reason, most business owners guarantee loans personally. In any case, you should setup a separate credit line for your LLC as soon as it is financially feasible. Thus, the LLC is solely responsible for the debts it incurs as a business entity. If the LLC becomes insolvent, creditors cannot reach your personal assets.

Keep assets to a minimum

In addition, it is often a sound idea to keep just enough money in an LLC to cover its operating costs and financial obligations. Therefore, if a creditor wins a judgment against the LLC in court, the creditor will only be able to access the small amount in the LLC’s coffers. However, if you transfer assets or money out of an LLC after a lawsuit has been filed against it, the court may rule that it is a fraudulent transfer. In addition, if you don’t keep enough money in the LLC to cover its regular expenses, a court may hold you personally liable. Undercapitalization may be seen as a ploy to defraud your business creditors. An LLC offers exceptional asset protection. If you wish to make the most of these features, it is often advisable to seek professional guidance from an expert in the field.

Have A Question?

1-888-779-6766

Asset protection is the process of protecting your assets. Protecting assets from lawsuits and claims of creditors is done through a set of strategies and legal tools. Here’s how. Set up LLCs and asset protection trusts. Some of the most powerful tools for shielding wealth from lawsuits are offshore trusts. Your local court does not have jurisdiction over our foreign trustee/law firm. This is how the process works. First, a professional evaluates your assets, risks, and financial goals. The planning process typically involves establishing trusts and companies to create legal barriers between creditors and you, the debtor. These strategies usually combine business and estate planning tools.

An established plan serves three primary purposes: lawsuit deterrence, settlement negotiation leverage, and/or placing your assets beyond the reach of a legal opponent. It is ideal to engage in asset protection planning prior to a lawsuit or other cause of action. You can, however, implement it at any time if you have not already done so. However, every situation is different. So please call us

1-888-779-6766

Case Studies

Boosted Advisors is an Incorporation Service Provider (ISP) and Commercial Registered Agent (CRA) with offices in Las Vegas, Los Angeles, and Orlando. Asset protection, tax strategies, and estate planning are some of the services offered by Boosted Advisors since 2004. All 50 states are covered by our formation and organization of corporations, limited liability companies, limited partnerships, land trusts, and revocable living trusts. Thousands of clients have trusted us for 18 years and we’ve written eight books on the subject. Call us today to learn how we can “Cover Your Assets”.

Irrevocable Trusts

A irrevocable trust is a trust that cannot be changed or canceled once it has been signed. Revocable trusts can be altered or terminated, and only become irrevocable upon the death of the trust maker.

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LLC's And LP's

LPs, also called limited partnerships, consist of limited partners, unlike general partnerships, which consist of general partners. LLCs, or limited liability companies, consist of members.

Living Trust

A living trust is a legal document that allows you to distribute your possessions to people and organizations after you die. You can still retain control of the property you put into a living trust, even though it “owns” it. As long as the assets have value, you can put them into a living trust.

Corporate Structuring

How does Corporate Structure work? The corporate structure refers to how a company’s departments or business units are organized. Depending on a company’s goals and the industry in which it operates, corporate structures differ widely.

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