Business Asset Protection Planning

Presented as an FAQ format, this guide will help you understand the steps and actions you should pursue if protecting your business assets has become a concern.

How do the issues for a business differ from those for an individual?

  • Protecting business assets allows you to use all the various business structures that are available in today’s world, including:

Limited Liability Company

  • A combination of a partnership and a corporation they allow limited liability and charging order protection.  They are great business entities to utilize. They are recognized in every state and can be taxed in numerous different ways. The members can be active and still maintain their limited liability.

Corporations

  • Corporations have been around since the United States was founded. In fact, corporations have been given “corporate personhood” dating back to an 1886 Supreme Court case. This gave corporations the right to fully enjoy the legal status and protections created for human beings. As such corporations have long been used to own and hold assets with limited liability for the owners and officers.

Partnerships

  • These exist as both general partnerships and limited partnerships. The Family Limited Partnership craze in the 1980s really helped start the whole asset protection business that we see today.  A general partnership really has no asset protection, but a Limited Partnership does.  They have pretty much been replaced by Limited Liability Companies due to the fact that the general partner has unlimited liability in a limited partnership. In a Limited Liability Company, the manager has limited liability, as do corporate officers.

What if I already have a corporation and do not want to change the structure?

  1. One of the simple and easy things that can be done to protect your corporate shares from a creditor is to have a buy/sell agreement between you and the other shareholder(s). This can prevent a creditor from attaching your stock in the company.
  2. Another possibility is to put liens on the shares in the form of a UCC filing.
  3. Your shares could be transferred to an LLC where they will receive charging order protection.

I have multiple businesses. How do I protect them all?

  1. This takes a good advisor who really understands the nature of asset protection and has the skill to implement it in a business environment.
  2. Many adverse tax issues can arise if the planning is not professionally done.
  3. Multiple structures are normally needed in a way that allows the entire plan to work and flow together for ease of access and management.
  4. Frequently, we use different management and ownership arrangements to best utilize the structures.

What about putting liens on my assets?

  1. This can be done but it must be done correctly. Just arbitrarily putting liens on assets where someone else controls that lien is not the best way to do things.
  2. Liens that you control and that have a business purpose are the way to go.  We are one of the few companies that truly understand how and why the lien structure works. We can assist you is setting up a structure that makes good business sense, provides asset protection and give you the best possible chance of surviving a creditor inquiry.
  3. Liens are also an excellent way to move cash from a risky structure to a safe structure.
  4. Talk with us about our friendly liens, how they work, and how you can be in control.  With our unique capitalization note process, the lien “makes sense” and will work.

How do I decide which assets to put into which structures?

  1. The fundamental rule is to never mix assets of value with assets of risk. A company that sells food products that goes into someone’s body and can cause problems should never be mixed with a company that does graphic design, which is a far less risky business from a lawsuit point of view.
  2. Trucks and cars driven by employees are risky, but the underlying business may be far less risky so it is important to separate ownership and control.

The FAQ items above will give you some idea of what goes into a business asset protection plan. Many entrepreneurs are dealing with multiple businesses and assets, and therefore have to give careful thought as to how best to protect each separate unit. It is not unusual for one operation to be the lawsuit magnet and the others need to be protected for the risky business.

A good business plan can protect:

  • Accounts Receivable
  • Equipment
  • Trademarks
  • Patents
  • Stocks and Bonds
  • Raw Material
  • Notes Receivable

As a business owner, you can be sued for many different violations of laws that you may not even know exist. There are attorneys who specialize in suing business for violating obscure and unknown requirements just so that they can make money. An example of this is a well-known Los Angeles California attorney who sued restaurant owners for years for failure to post the proper employee notices. No employees ever received any money from the settlements. In fact, the cases never went to court. The restaurant owners paid the attorney an average of $7,500 to go away. He pocketed the money and moved onto the next victim.

One of our clients was sued for $1.5 million because this client sent a fax without prior authorization from the recipient. The lawyer who sued him was the lawyer who helped write the state bill that prohibited it. The actual plaintiff was a company that had used this attorney to assist them in meeting their budgetary shortfalls by suing numerous suppliers for sending “unauthorized faxes.”

Fortunately, our client had done extensive asset protection over the prior ten years and the suit was dealt with by settling for far less than they otherwise would have to pay.

When attorneys like this go for the big numbers, you can easily go out of business or lose all of your assets. This is why a solid business asset protection plan set up by a knowledgeable person is essential to success. It is like insurance — you don’t need it until you do!

With our 30 years of expertise, experience and knowledge we can assist you in protecting your business assets. Please call us at 800-710-0002.