Most business owners that I meet are surprised to learn that just because they operate their business as an incorporated entity (S-corp or C-corp) or an LLC, their business and personal assets are NOT “automatically” and “fully” protected from business or personal litigation.
Ignorance is bliss, getting a hard reality check from the hungry litigators in an overpopulated legal system is a difficult lesson to learn. Take note – if you’re not prepared – the legal system can be brutal and unforgiving.
We get too many phone calls from business owners who are facing litigation from an event that’s already happened. “What can I do?” At that point you can’t do much – hire the best defense attorney you can find, and hope you and your business survive it. These are difficult calls for us to take because the critical fact is that asset protection must be proactive – meaning it must happen before the accident or event that caused the litigation. Any changes to entity your structure, ownership of assets, ownership of the business, or movement of cash will be rewound by the courts to exactly how things existed at the time of the accident. Take a picture of exactly what your business structure looks like at the time of the accident – and that’s what you’re stuck with!
The stories are eerily similar. It was an employee who had been with me for 20 years and never had an accident. He was having a bad day at home, driving a company vehicle while distracted looking at a text message, crossed into the other lane, and then disaster occurred. Talk about a life-changing event for everyone involved. Someone needs to pay for this! The courts look to the “deep-pocketed” business owner of course!
Think about it, if asset protection strategies are used by and work for “big” companies, why won’t they work for you. We have decades of case law and real-world examples that demonstrate how asset protection strategies should be implemented and how these strategies will be viewed by the courts. I get asked quite often, “Why is litigation so rampant in our society?” No doubt there are a lot of attorneys out there, but the real reason is that privately held companies are very attractive targets for litigation – because no proactive planning is in place. The majority of business owners operate their businesses with business assets, real estate, buildings, inventories, receivables, and cash exposed to litigation. Most of those also risk personal assets because of errors or omissions with their corporate formalities compliance. Both of these unfortunate situations are avoidable – with education and strategic asset protection planning. Don’t be misled by the fact that your business assets are nearly fully depreciated – if you lose assets in litigation – the real cost is “replacement value” of assets. Remember – you can’t operate your business without assets. Book value is meaningless.
The solution is strategic asset protection strategies and entity structure planning that combines all relevant business, tax, and legal ramifications and considerations. We’ve had clients who have gone to an attorney who proceeded to set up too many companies or LLCs that required too many tax returns each year and were just too cumbersome for the business to keep track of. The good news is that there are much better ways to do this. We also have clients who tried to do it themselves and have found out the hard way that their planning would not stand the test of litigation because of issues with the entity structure, ownership of assets, real estate or equipment leases, etc.
A well-designed strategic plan can effectively provide tax saving opportunities and benefits AND legal asset protection benefits – while at the same time being manageable for your business to implement and work with on a day-to-day basis! This type of planning helps more effectively build your wealth and increases the market and lending value of your business. Talk about a win-win situation. Benefits now and in the future!!
