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The Secret To Protecting Your Business Assets
by Richard A Chapo
Regardless of the type of business you conduct, there is a significant risk of
being sued in our litigious society. Lawsuits can range from claims of
negligence to defective products to disputes with employees. Incorporating is a
means of guarding against these potential threats.
Single Incorporation - Protecting Your Personal Assets
Incorporating your business is a method for creating a legal wall between your
personal assets and business. Any judgment against your business will not impact
your personal assets. While your home, savings, stocks, etc., are protected,
what happens to your business? If a judgment is rendered against your business,
the business assets are as good as gone. This doesn't have to be the case.
Double Incorporation Strategy - Protect Your Business Assets
Many businesses can benefit from pursuing a double incorporation strategy. The
strategy is designed to address the situation where a business has significant
assets that are exposed to litigation risk. If you incorporate your business, it
is all well and good that your personal assets are not at risk. But what if your
business has a number of high value assets such as manufacturing machinery,
office equipment, popular domain name, custom software or other items? Merely
incorporating your business will not protect these assets because they are owned
by the business entity. Since a successful lawsuit would result in a judgment
against the business entity, all assets of the business could be seized as part
of the judgment. In short, you lose your machinery, office equipment,
intellectual property or any other item of tangible value. The double
incorporation strategy prevents this scenario.
As the name suggests, the double incorporation strategy involves the creation of
two business entities. The first is your "at risk" business that interacts with
your customers or clients. The second entity, a "holding corporation", is then
created to own the valuable assets of your business. This holding
corporation
then leases the relevant business assets to your "at risk" entity. If the "at
risk" entity is sued, the holding company merely recovers its assets and the
plaintiff is forced to settle for pennies on the dollar because the "at risk"
entity has few assets. In essence, the plaintiff wins the battle, but loses the
war.
Most people know that a business entity can be used to create a protective
shield for their personal assets. If your business has high value assets, now
you can use this double incorporation strategy to protect those assets as well.
Richard Chapo is the lead attorney for the law firm
http://www.SanDiegoBusinessLawFirm.com
- a firm providing legal advice to California businesses. This article is for
general education purposes and does not address every facet of the subject
matter. Nothing in this article creates an attorney-client relationship.
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