Question: How do the issues for a business planning to protect its assets differ from those for an individual?
- Protection planning for business assets really allows you to use all the various business structures that are available in today’s world, such as:
- 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 gives 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 They have pretty much been replaced by Limited Liability Companies due to the fact that the general partner has unlimited liability in a limited partnership.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.
Question: What if I already have a corporation and do not want to change the structure?
- One simple and easy action 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.
- Another possibility is to put liens on the shares in the form of a UCC filing.
- Your shares could be transferred to an LLC where they will receive charging order protection.