BULLETPROOF COMPANY STRUCTURING
What Are the Various Asset Protection Strategies?
"Over 40 Million lawsuits are filed every year in the USA with an additional 1 million attorneys joining the workforce every year!" — U.S. Financial Education Foundation
In essence, this means that you must always remain vigilant, and take the necessary steps to protect yourself from potential litigation. There are three key asset protection strategies.
Three Key Asset Protection Strategies
Limited Partnerships (LPs), Corporations, and LLCs
The government protects owners of limited liability companies, corporations, and limited partnerships through limited liability laws. Typically, individual owners of such entities are exempted from the organization's debt. Therefore, you can use such businesses to borrow credit and protect your assets from seizure.
Asset Protection Trusts (APTs)
This is one of the strongest methods of asset protection. An asset protection trust works like a bank trust that holds assets at the discretion of the settlor. These assets are not legally entitled to the owner. Instead, the owners are beneficiaries of equitable interest in the assets.
Transferring Property Rights
An individual may transfer the legal right of their asset to a trusted friend, spouse, or relative to protect it from creditors. Therefore, the debtor can still possess their asset without the risk of losing it to creditors.
When Should You Initiate Asset Protection?
You must set up your structure prior to a lawsuit in order to protect your assets. Initiating asset protection early helps prevent a fraudulent ruling since it's a civil case, not a criminal one. You also get reasonable negotiation leverage, ensuring a favorable outcome from the lawsuit or claims.
The key takeaway: Don't wait until you're facing a lawsuit to protect your assets. The time to act is now, while you're in a position of strength.
Which Business Entity Is the Best Choice for Me?
Businesses vary according to their goals, costs, investor interests, risk tolerance, and financial standing. There will never be one perfect choice for everyone. The options vary from a sole proprietorship (which provides no protection for personal liability) to a complex choice with multiple layers of business entities that provides maximum personal liability protection.
Limited Liability Company (LLC)
LLCs combine the liability protection of a corporation with the simplicity and flexibility of a partnership. Members are not personally responsible for business debts or obligations. LLCs have the option to be taxed as a sole proprietorship, partnership, or corporation — making them a popular choice for small businesses.
C Corporations
C-Corps are separate legal entities from their owners, meaning shareholders have limited liability. C-Corps are taxed as separate entities and any profits are taxed at the corporate level before being distributed to shareholders as dividends. They are often preferred by larger, publicly traded companies.
S Corporations
S-Corps pass corporate income, deductions, and credits through to their shareholders for federal tax purposes, avoiding double taxation. They have the same limited liability protection as C-Corps, but are subject to more restrictions, such as having no more than 100 shareholders.
Partnerships
Partnerships are a type of business structure where two or more people own and operate a business together. They are often preferred by small businesses because they are relatively simple to set up. Partnerships are pass-through entities, meaning business income is taxed at individual partner rates.
Series LLCs
Series LLCs allow a single company to create separate series or cells within the company that have their own liability protection. Each series can have its own assets, income, and debts separate from the others. Series LLCs are often used in real estate investment, where each property can be managed as its own separate series.
Family Limited Partnership (FLP)
An FLP is a limited partnership that only contains members from the same family. One of the biggest advantages is the tax benefits — transferring limited partnership interests to family members reduces the taxable value of the estate while maintaining complete control over management and investment decisions.