Business Protection Planning For Small Business Owners In Louisiana
Serving Clients In Mandeville, Louisiana And Alexandria, Louisiana And The Surrounding Areas
A small business entity such as an LLC or corporation, is primarily meant to provide a certain degree of protection for the business owner(s) from lawsuits and claims made against the business. In other words, if someone sues your company, and if your business is an LLC or corporation, your personal asset MAY be personally exempt from the lawsuit. This is a big “MAY”, because your personal liability will depend on your actual activities and the claim(s) made by the plaintiff in his or her lawsuit. But if your business is a “sole proprietorship” or a “state law partnership” by default ALL of your personal assets are subject to seizure by a claimant even if those assets are not held by or are in the business. For example, this can include your personal home.
“Bottom Up” Asset Protection Planning
“Bottom Up” asset protection planning in the context of business entities is a phrase I coined to describe a lawsuit initiated by someone against your business (coming from “the bottom”), and the business stands between you and the plaintiff. In this case, just the assets of the business itself can be used to satisfy the lawsuit in the event the plaintiff is successful. It can be described by the following graphic:
“Top Down” Asset Protection Planning
“Top Down” asset protection planning in the context of business entities is a phrase I coined to describe a lawsuit initiated by someone against the YOU PERSONALLY (coming from “the top”), and the business doesn’t stand between you and at litigant. In this case, all of your personal assets can be used to satisfy a judgment against you, including your ownership in the business. It can be described by the following graphic:
Both “Top Down” and “Bottom Up” Asset Protection Planning
Because you are not necessarily in control of who the litigant will sue (the plaintiff can sue both you and other owners, as well as your business entity), optimally you should engage in both “Top Down” as well as “Bottom Up” asset protection planning. As an example, assume you own and operate a tug boat on the river, and you have contributed your tug boat to an LLC. If you make a mistake, a plaintiff can (and will) sue both the business and YOU because you were the doer of the bad deed. In other words, merely having an LLC or corporation with bare bones legal documents is often not enough, and can lead to a false sense of security. The lawsuit can come from both directions:
The Importance of Good Organizational Documents
If you are personally named in a lawsuit, your personal assets may be used to satisfy any judgment against you. That is, unless your assets are protected. To properly protect you, your interest in the LLC or corporation should be made subject to an agreement amongst the owners, and entity level documents drafted by a good asset protection attorney are necessary. Bare bones Articles of Organization provided by the Louisiana Secretary of State won’t make the cut for good planning. Further, in some cases, you can contribute your assets to a trust in order to “layer” one level of asset protection planning on top of another. Although no asset protection plan is bullet proof, with a good liability insurance policy, intended to make a plaintiff “go away” with some case, you can get as close to bullet proof as possible with the proper planning.
Reach out to Ted if you would like to discuss having some or all of these features built into your business.
- Forbes: 6 Asset Protection Strategies to Shield Your Wealth
- The White Coat Investor: 20 Things You Need to Know About Asset Protection