Asset Protection Thru Multiple Corps

Spliffic

Spliffic

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Apr 5, 2008
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I previously asked this question in Mont's Legal IM Q's thread (he's MIA for the time being and no reply so far), so I thought I would get your opinions on this cos I'm sure some of you have done this.

For asset protection with an existing corporation, have any of you setup a secondary corp (i.e. subsidiary) and transferred the monies from your original corp to this newly setup corp?

For example, let's say you have a relatively successful existing IM corp which contains a large sum of business income which is currently held by the corporation. As IM is a risky business, you could potentially be sued by anyone for anything. I have a few other ventures I would like to fund, and therefore do not want to jeopardize these new ventures by potentially introducing problems from previous ventures and vice-versa.

Would setting up secondary corp(s) and transferring some of the existing business assets to these new corps (of course covering all the tax obligations to the government as needed) protect you from any liabilities that your original corp may encounter? If your original corp gets sued, and there are essentially no business assets left in this corp (as they've been transferred to these secondary corps), is the person suing able to go after monies in your secondary corps?

Would love to hear your replies/comments on this.
 


You may want to ask your attorney about setting up an LLP, which can manage all of your LLCs and should offer you full protection, so if a fire comes up in one, it won't affect the others.

EDIT: If the LLCs are already created may not work, they have to be created under the LLP umbrella initially, so scratch that.
 
I am not a lawyer. But from my understanding under the scenario you posted above you should be okay if just your IM entity gets named in a lawsuit, just that entities assets would be up for grabs.

If they named you personally, all the assets they can find/discover would be up for grabs. I do a lot of real estate stuff, IM and another business, I have 5 different entities at this point. Another thing to think about is, the less "valuable" you look on paper the lower the chances are that someone is going to spend money coming after you.
 
If you're sued or you get in legal trouble, they will blow through these thinly veiled corps in no time. They'll just say the different corps are merely shell companies, and are all 100% under your control.

To properly segregate your assets each corp should have its own independent management team, with you owning non-voting control.
 
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Tim Ferriss borrowed this in a post from Neil Strauss (yes the same guy that wrote those pickup books) about his book Emergency.

W/r/t the more specific questions you answered about the ability to 'pierce the corporate veil' it would be difficult for anyone- attorney or not- to give you an accurate answer with the information supplied. Corporate and tax laws vary by state and industry.

For example, in DE there is case law that would indicate that a litigation involving a 'single-member LLC' can include said member's assets in the calculation of damages. Even if you have a corporate umbrella and the 'single member' in this case is another corporation.

Whether or not that holds true for, say, a California resident who owns two NV corporations or some other hypothetical situation, I don't know. But someone here may...Wickedfire probably has more people that have been C&D'ed and sued than would-be or actual attorneys.
 
The books have to balance. Always.

Part of the problem is that you can't just "transfer" money to another corporation. You can loan it to the other corporation which gives company "A" an asset (a debt which is considered an asset) and company "b" gets a bunch of cash + a debt to repay.

The net balance is the same (not counting interest), so if someone sues company "A" they could force you to sell the receivables (in this case the loan to company "B") for anything from 25-95 percent of face value in order for you to pay up.

Alternatively you could take the cash out of company A as a cash dividend (S-Corp) or a paycheck and re-invest it in business B. In that case it becomes paid in capital but you still have all the same problems - then company "B" has an asset (cash) that could be gone after even if a person sues company "A" because they would then go after the owner's assets.
 
It has become standard practice these days to name both the corporation(s) and owner(s) / management team in any lawsuit. This is especially true in situations with sole proprietors / single members taking advantage of the corporate shield that used to work so well.

I have a parent LLC with multiple DBAs and LLCs under it simply to make the book keeping a little easier for me and to make it easier to sell off portions of the business when the opportunity arises.. I have no doubt that if I get sued at some point I will be name personally and it will be up to my lawyer to make the corporate shield hold up.. But the best plan is to simply shy away from areas that are litigation heavy and try not to get sued..
 
Spliffic said:
I previously asked this question in Mont's Legal IM Q's thread (he's MIA for the time being and no reply so far), so I thought I would get your opinions on this cos I'm sure some of you have done this.

For asset protection with an existing corporation, have any of you setup a secondary corp (i.e. subsidiary) and transferred the monies from your original corp to this newly setup corp?

For example, let's say you have a relatively successful existing IM corp which contains a large sum of business income which is currently held by the corporation. As IM is a risky business, you could potentially be sued by anyone for anything. I have a few other ventures I would like to fund, and therefore do not want to jeopardize these new ventures by potentially introducing problems from previous ventures and vice-versa.

Would setting up secondary corp(s) and transferring some of the existing business assets to these new corps (of course covering all the tax obligations to the government as needed) protect you from any liabilities that your original corp may encounter? If your original corp gets sued, and there are essentially no business assets left in this corp (as they've been transferred to these secondary corps), is the person suing able to go after monies in your secondary corps?

Would love to hear your replies/comments on this.
Click to expand...

good question.
 
Thanks to those who replied, and I've read about piercing the corporate veil and going after owners assets if the corp in question doesn't have sufficient funds to cover the damages etc.

Let's examine another scenario. If I wanted to create my own supplement line myself under my corp, and a bunch of customers experience some sort of allergic reaction, can you lose all your personal assets because these customers decide to file a class action? I guess this is where liability insurance would come into play but you know where I'm coming from with this kind of stuff. You are essentially the one in control when the problem occurred, and even though you can have disclaimers coming out your ass, it seems like a corp (single person) is nothing much more than a tax shelter since it can really offer no protection.

Just want to spark some discussion on the subject. I know this stuff is best discussed with a lawyer etc or in Mont's legal thread, but I think this is of interest to all of us marketers as any crazy person can decide to take a run at you.
 
Few points of advice

1) If you actually have enough money to protect, then you need to have liability insurance. Both personal and corporate. If you get in a car accident and hurt/kill someone, they will attempt to take you for all your worth. You need a few million in liability at least.

2) Retirement accounts are off limits in the event of a lawsuit. There are several options for different retirement accounts, talk to your financial advisor, but it is a good way to protect assets.

3) You can protect assets through whole life insurance. There are pros and cons, but again talk to a financial adviser.

4) Foundations and/or trusts are another good way to protect assets. Once you give a gift/fund a foundation, it can't be taken away. Then you can collect a salary from the foundation. Your gift is protected in case you get sued. Now i'm not advocating creating a foundation to protect money, but if you want to make one it is a good by-product.
 
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listen to majorbta..

I got the same advice from my asset planning attorney.

You can have 1 LLC ( thats properly set up mind you ) and then cover yourself with some insurance on the company, E&O insurance, and as well umbrella insurance for yourself.

Also, sock some money into retirement.. why you think OJ Simpson was still doing good all these years ( until he went to jail on unrelated )

Put some of your major investments into trust, like a family trust for your home.. etc

If you do all this, your gonna be good for a lot of things unless your doing something illegal, criminal, or on purpose. If you still feel you need more protection, start looking offshore with legit offshore corps that are owned by a parent company and hold money in other countries, but make sure you know what your doing when you get to this step and make sure you have already done the above steps first.
 
I love these threads and suggestions. My question is, at what point do I REALLY get serious about this kind of protection in the posts above?

Right now, my net worth is definitely higher than 99% of people my age, but it's not that incredible. I could make it back (wouldn't want to lose it, but I wouldn't be suicidal either).

At what point for you guys did it become worth the hassle of creating and managing subsidiaries and stuff?

I guess I'm due to see a CPA who's down with this kind of stuff.
 
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