Asset Protection/Personal Liability
Shield — Choosing the Entity Form
One of the primary concerns of most individuals
contemplating starting a business is that of shielding the owners
of the business from the debts and liabilities of the business. There are various business entity types to consider such as the following:
Sole Proprietorships and General Partnerships:
While Sole Proprietorships and General Partnerships
are very simple and economical ways to begin engaging in business
with some tax and other advantages (note, however, that these same advantages can be had with other more protective business entity structures), these two types of business entities
have the enormous drawback of providing no “front end” protection
or shield to its owners from liability for the company’s
debts and other liabilities. If the business gets sued, the business owners will be the ones that will be sued. Therefore, doing business as a either
a Sole Proprietorship or a General Partnership is generally always
a bad idea.
Limited Partnerships:
Properly structured Limited Partnerships or
Family Limited Partnerships can provide both “front end” and “back
end” protection. A Limited Partnership is composed of a
General Partner and Limited Partners. While the Limited Partners
are shielded from the debts and liabilities of the Limited Partnership,
the General Partner is fully exposed to the debts and liabilities
of the partnership. Also, in a Limited Partnership, it is important
realize that the Limited Partners are not allowed to participate
in the management and operation of the business. Therefore, structuring
of the Limited Partnership is critical, in order to ensure minimal
exposure from the General Partner side and to ensure that the
Limited Partners maintain their shield from the debts and liabilities
of the business.
Corporations:
Properly formed and maintained Corporations
provide “front end” protection or shielding
of the owners/shareholders from the debts and liabilities of
the corporation. As compared to Limited Liability Companies (LLC’s)
and other business entities, Corporations generally have the
drawback of having to comply with specific state imposed statutory internal governance or “formality” requirements,
such as organizational meetings, annual meetings, requiring designation
of officers and directors, bylaws, stock certificates, etc. The failure to comply with the requisite
business formalities may create some risk of the Corporation
having its veil pierced and personal liability being attached
to the shareholders/owners of the Corporation (Note that Nevada law provides liability protection for officers, directors and shareholders of corporations). Another drawback
on the “back end”, as compared to partnerships and
LLC’s, is that the shareholder’s stock may be attached
as asset by a shareholder’s personal creditors to satisfy a judgment. Therefore, if the business will own valuable assets (e.g., real estate and other investments), an entity with back-end protection (i.e., protection of the equity owner's ownership interest in the business entity) may be a better choice.
Limited Liability Companies (LLC):
A properly formed and maintained LLC will provide both "front end" protection and shielding for the busines owners of the company from the debts and liabilities of the LLC. In addition, the LLC has the advantage of some "back-end" protection of the member's (aka: equity owner's interest in the LLC) membership interest in the LLC. Nevada law provides that a judgment creditor of a member of an LLC cannot execute on or seize the LLC member's membership interest in the LLC. The judgment creditor is left with one remedy in Nevada. That remedy is to go into court and to obtain a charging order to "charge" (in other words to "lien") the judgment debtor member's right to receive a distribution of assets or profits from the LLC when and if such distributions are made. The charging order does not give the judgment debtor the right to force a distribution of money or assets to the member so that they will receive it. They just have to sit and wait and hope that a distribution is made and, if so, they would get it through the charging order. [note, however, that due to potential negative tax repercusions the judgment creditor is unlikely to get the charging order in the first place].
Professional Corporations, Professional Limited Liability Companies, Limited Liability Partnerships and Other Entities for Professionals:
For professionals such as Doctors, Dentists, Chiropractors, Architects, Lawyers, and others, proper business entity planning and structuring is very important. Before forming any business entity, a professional should consult with a qualified attorney who can properly advise and help the professional to structure the business. In addition, because of the risk of personal malpractice liability, personal asset protection and estate planning for the professional is especially important.
At Black & LoBello, we understand
and are sensitive to your need for optimum business and personal asset
protection and shielding.
Therefore, we offer a free initial half hour consultation,
wherein we will discuss your business entity options
and how we can best help to ensure that you and
your business associates receive and maintain sufficient
asset protection and are shielded from personal
liability. Also we answer the questions of why incorporate in Nevada or why form a Nevada LLC, in order to give you a better understanding of all the benefits that come with an Nevada corporation or Nevada LLC.
During your free consultation, Black & LoBello
will be happy to explore the entity options with you and help
you to ascertain which entity would best suit you and your
new business.
Why
Form a Business in Nevada?
Nevada (often called the “new Deleware”)
currently has what is considered to be the most favorable business
entity laws in the United States which provide real advantages
to businesses of all types. Some of the advantages over many
other states of forming a Corporation or Limited Liability Company
in Nevada include:
• No State Corporate Income Tax
• No State Taxes on Corporate Shares
• No State Franchise Tax
• No Personal Income Tax
• No Internal Revenue Service (I.R.S.) Information Sharing Agreement
• Relatively low Annual Fees
• Minimal State Reporting and Disclosure Requirements
• Stockholders are not Public Record (i.e., bearer shares are allowed in
Nevada) (maintaining maximum Stockholder anonymity & privacy) -- Nevada LLCs also allow for maximum owner annonymity and protection
• Only one person is needed to create and maintain a legal Corporation
or LLC
• Stockholders, directors and officers need not live in or hold meetings in
Nevada, or even be U.S. citizens
• Directors need not be stockholders
• Officers and directors of a Nevada corporation or Nevada LLC can be protected
from personal liability for lawful acts of the corporation or LLC
• Nevada corporations may purchase, hold, sell or transfer shares of its
own stock
• Nevada corporations may issue stock for capital, services, personal property,
or real estate, including leases and options. The directors may determine the
value of any of these transactions, and their decision is final.
Why
Choose an Attorney to Incorporate My Business?
While there are currently many non-attorney
incorporation services now available which tout their low incorporation
fees, there a number of very real reasons why you should choose
a licensed Attorney to form your new business, including:
• Non-Attorney individuals and companies
cannot lawfully provide you with legal advice concerning the
formation and maintenance of your company.
• Many of these individuals and companies fees are so low because they
do not provide all of the services needed to complete the incorporation and formation
filing and process for full compliance with the applicable Nevada statutes. This
may lead to your paying even more fees in the long run.
• Some of these companies and individuals, while advertising that they
are “incorporating” a company for you, actually only form an entity
with themselves shown as legal owner and then “sell” the consumer
a corporate or LLC “shell”. Some unwitting consumers are then left
on their own, not knowing that additional filings and procedures are required
until they discover that their entity charter has been revoked or that they may
be subjected to personal liability and are then hit with additional fees and
costs to bring the entity into compliance (if the deficiencies are discovered
soon enough).
• Many of these entities only provide you with non-customized Forms that
may or may not fit your company’s specific needs (and they do so both because they lack the legal expertise and know-how to properly draft such documents and to avoid the crime of practicing law without a license).
• An Attorney, on the other hand, can assess your specific needs and provide
you with valuable legal advice and a customized entity formation that may save
you hundreds or thousands of dollars in the long run.
• An Attorney can provide you with ongoing legal advice and assistance
to help ensure that your company continues to provide you and your associates
with the personal liability shield that is critical to ensure that the individuals
are not saddled with costly personal judgments and other problems.
• An Attorney can provide your business with ongoing legal advice and assistance
to help you make important decisions that may greatly impact your company.
To form a Nevada entity either give us a call
or email for an appointment for a free consultation. Or, to start
the process to form a Nevada Corporation or LLC now, click on the following link to complete the online formation questionnaire. As part of the process we will also be happy to provide you with a free personal consultation with a Nevada licensed attorney who can assess and advise you with regards to your specific needs.
Form
a Nevada LLC Online
Form
a Nevada Corporation Online |
