Corporate and LLC Asset Protections
Legal business structures like LLCs and corporations are used frequently as asset protection measures. Which structure you should choose depends largely on your assets and the types of creditors you are likely to face. Two types of legal structures are corporations (of which there are several types) and LLCs. An asset protection attorney from Mortellaro Law in Tampa, Florida, can provide in-depth advice and legal assistance with these types of legal entities for asset protection.
What is an LLC?
An LLC is a Limited Liability Company. This legal entity can be used to run a business or hold assets. It is designed specifically to protect the personal assets of members from any liability claims levied against the business. LLCs can be owned by a single person (“single-Member” LLCs operated like a sole-proprietorship) or by more than one person (“Multi-Member” LLCs). These owners are called members.
This business entity came into existence in response to many regulations that were imposed on S-corporations. LLCs provide liability and asset protection to their members like a true corporation, and similar tax benefits, but without many of the formalities and restrictions imposed on various corporate business entities.
What are the Advantages of an LLC?
An LLC is a business entity separate from its owners. This is what provides the liability protection Generally, creditors of the LLC can pursue the LLC’s assets, but the owners’ personal assets are safe. Of course, there are some exceptions. Owners that have personally guaranteed debts are responsible for those debts. Owners as individuals can be sued for wrongdoings that are not connected to the LLC.
Owners may describe how they are protected by the LLC within its formal operating agreement. Additionally, LLCs can be set up with alternate managers from the persons actually running the business under the LLC, which provides anonymity. LLCs are widely used as the best and most effective asset protection method for small businesses and entrepreneurs.
Michelangelo Mortellaro, Tampa asset protection attorney, can explain the details of how an LLC can protect your assets in your unique situation, but here are some tips for using LLCs to their greatest benefit.
Protect Yourself and the LLC with Insurance
Personal liability lawsuits can wipe out your personal finances apart from the LLC’s protection; likewise, a lawsuit against the LLC can rob it of all assets. Obtain a solid liability insurance policy that protects both you and the LLC.
Keep the LLC an Independent Entity
Any corporation shareholders, including LLCs, who mix personal assets with corporate assets can sometimes be held personally liable and therefore place their personal assets at risk. To avoid this risk, keep your LLC records and finances completely separate from any owners’ personal finances. This includes the LLC having its own bank account and credit cards, and loan accounts. All documents should bear the LLC name.
Establish Credit for Your LLC
All loans or credit for the LLC should be obtained under the LLC’s name and must in no way be connected to the owners. If you as an owner pledge personal assets to guarantee credit for the LLC, creditors and lawsuits may pursue your assets as well as the assets of the LLC.
Limit the Assets Actually Controlled by the LLC
Creditors or lawsuits can pursue the assets of an LLC, but not your personal assets. Limit the LLC’s vulnerability by limiting the amount of money or other assets actually held by the LLC. Distribute the rest to the owners; this makes these assets untouchable.
What is a Corporation?
A corporation is also a legal business structure that is often used to run a large company with shareholders and investors. These shareholders actually own the corporation, or at least portions of it. Corporations are governed by a Board of Directors and the corporation’s day-to-day business is handled by Corporate Officers. The Board of Directors and all Corporate Officers are elected by the shareholders.
Corporations are typically companies that handle large operations and deal with vast amounts of capital. They are required to hold annual meetings (and some others more often, according to their corporation charter), keep accurate notes of all meetings in a legal record and issue shares to stockholders. The three most popular types of corporations are:
- Limited Liability Companies (LLC – described above)
- C Corporation
- S Corporation
Each have different benefits and liabilities, and each provides some asset protection measures for shareholders and owners. Asset protection attorney Michelangelo Mortellaro can help you determine which legal entity structure is best for your organization, as well as craft appropriate corporate documentation as needed.
What are the Advantages of Corporations?
The C corporation structure is most popularly used by major public stock companies. It can have unlimited shareholders from across the globe. The C corporation’s most adverse trait is that it is subject to double taxation. The corporation itself must pay taxes, and then shareholders must pay taxes on their dividends, which amounts to paying taxes twice on the same profits.
This can amount to a hefty tax burden, which is why most smaller businesses choose the S corporation structure. There, the profits are only taxed a single time, but there are restrictions on the number of shareholders and even who can become a shareholder.
There are few significant asset protection benefits from either type of corporation. Creditors and lawsuits may pursue the assets of the corporation, and they may also pursue a shareholder’s stock and interest in the corporation. In the case of an S corporation, if there is a single shareholder, a creditor can seize all the stock in the company and gain control of the corporation.
For this reason, any asset protection attorney will advise stockholders to place their stock into an LLC or some form of asset protection trust to protect it from creditors and lawsuits. Mortellaro Law can help you structure appropriate asset protection measures as a stockholder in a major corporation.
For more information about the asset protection measures that are afforded by corporations and LLCs, contact asset protection attorney Michelangelo Mortellaro of Mortellaro Law in Tampa, Florida. He has the knowledge and experience to help you determine the best possible means of asset protection.