Every day I hear the phrase, “I have a corporation, so I am already protected.”
There may be no more misunderstood concept of law than that of the Corporate Veil. The concept is that the corporation provides a “veil” of protection to the owners. In other words, if the company does something which creates a liability, then it could be liable, but the owners themselves are not.
Well in most cases this is just WRONG. In fact the Corporate Veil is all but gone in small business America. Even for large corporate America, the corporate veil has taken significant damage. For example, consider the case of New England Pharmacy Compounding, Inc., a drug supplier held responsible for a nationwide meningitis outbreak and the death of 64 people.
Damages were settled at $100 million dollars, and guess what? The OWNERS of the company themselves had to dig into their pockets and come up with about $60 million of it! Where was the corporate veil there?
When it comes to the rest of us who own the majority, or all, of a smaller business then it can be presumed that if your business is held liable, then as the owner you will be too. This is true for doctors, lawyers, contractors, restaurant owners, and basically any professional or business owner out there.
Very, very rarely does the corporate veil actually stand up anymore when it comes to operating businesses. Where it is still useful is as a part of an integrate Asset Protection strategy. An LLC, used inside of an overall plan, holding a single asset, such as a commercial building, will often still get the benefit of the corporate veil in isolating that risk.
If used appropriately, it is possible to use LLC’s, Limited Partnerships, and other corporate structures to effectively protect your assets. Of course, to truly secure them, the final tool of an Asset Protection Trust must also used to provide for the ultimate EXIT STRATEGY if things really go south.
Hi Douglas,
Do you recommend in this case to set up LP that will own LLC or Corporation that will do business and LP in turn will be owned by springable trust, preferably in Cook Islands?
Im still not comfortable with the concept of trust and someone else owning and managing my property, could you explain more about how trustees are selected, how much control grantor has and how to avoid trustee fraud?
Thanks.
When we set up an Asset Protection Bridge Trust for a client, the client typically serves as the initial Trustee. The Trust is paired with an Arizona Limited Partnership of which the client (or an LLC controlled by the client) is normally the General Partner. Thus control remains with the client at 2 points (the LP and the Trust). If and when a threat occurs (typically a lawsuit), the Protector may declare an Event of Duress and the client is then removed as the Trustee of the Trust at which point the Trust company in the offshore jurisdiction takes over. In most cases I find that having the client in direct control of the assets is acceptable based on the level or risk. However, in the event the Trust or the client themselves are being attacked then control of the Trust must be in hands other than the clients. There is always a balancing act needed on the control vs. protection aspects of any plan. Clients who will not ultimately give up control when the assets are truly threatened risk the planning not working. Also the Protector is always in place to watch over the Trustee and the funds themselves are most often in yet another party in the form of a bank. That bank will know who the UBO (Underlying Beneficial Owner) is the client and the client is encouraged to develop a relationship as the UBO with that bank. This gives several points of check and balance with 3 separate parties, which I have found is acceptable for clients who are facing a true risk.
As a small small business owner with no employees what kind of costs could I expect to protect me and my assets, basically my home?
Ali
Thank you for visiting Lodmell.com.
We determine the investment required to protect you on a complete analysis of your existing personal planning. The required investment could be anywhere between $5,000 to $30,000. Our fees are fixed and we do not charge by the hour. Please call to schedule your analysis.
In the meantime, in addition to the legal tools you may require, examine the following Risk Management issues:
– D & O coverage as directors and officer’s distinct from E&O & general liability;
– EPLI insurance to help protect against employee lawsuits;
– Data Breach and Cyber liability insurance that protects you against the massive costs of exposure or theft of sensitive client financial info. This applies to BOTH outside attacks, (theft, hacking) and inside misuse of that info by your employees.
– revisiting your life insurance on policies already in place;
– Examine obtaining long term care insurance and disability insurance and remember it’s not just about being old, it’s also about getting sick or hurt;
– Examine the liability coverage on your autos; make sure you have an umbrella of seven figures;
– Auditing your investment/retirement planning