Garrett Sutton, member of The Rich Dad Infinite Team, and Rich Dad Attorney and Blair Singer, Rich Dad advisor and leadership expert, talk with Robert Kiyosaki about asset protection in today’s economy.

One way of protecting your assets is in the form of an LLC. Garrett, tell us what an LLC is for the layman?

“A limited liability company. It's the most popular entity now available. It offers asset protection and flexible taxation. It's a great way to protect your assets.”

Why can someone with a corporation (but not an LLC) be at risk in the event of a liability suit?

“Well, if you don't follow the corporate formalities, if you don't follow what the courts and the legislatures want you to do, an attorney can pierce through that corporation, that lumberyard corporation and reach the personal assets of the owners. And so, following these formalities are really easy. It's really dramatic if you don't though. You can lose all of your personal assets.”

As the economy worsens, litigation goes up. Any thoughts on that, Blair?

“Well, most small guys in the S quadrant don't even think about it. It doesn't even cross their minds and they can get wiped out instantly. They can be stolen from. They can be ripped off and sued. So it's something that most people don't even look at.”

When you talk about piercing the corporate veil, Garrett, you talk about formalities. Can you speak on that?

“You mentioned this in your foreword to Veil Not Fail, people set it up online and they don't know that they have these ongoing formalities. And then they learn the hard way that you're supposed to do meeting minutes. You're supposed to do tax returns. You're supposed to follow these rules. And in 50% of all cases, people are able to pierce through the veil and get at your personal asset. So clearly, half the people are not following the rules. And they're not hard to follow. That's the issue. I mean, it's so easy to follow these rules. If you don't, you lose everything.

We think of veil as kind of a traditional covering for a woman's face. And that's what it is in the corporation. It does give you a little bit of protection, but it's not like an iron wall. I mean, if you don't maintain the veil, people can pierce through it and reach your personal assets. So it's a manner of protection, but it's not a steel wall.”

If an attorney can see that someone hasn’t followed the rules of an S Corp, or their LLC, what happens to the ‘veil’?

“It falls, and they can then pierce through the veil, and there's no veil there, and they can get at all your personal assets.”

Garrett, in your new book ‘Veil Not Fail’, you explain that you protect corporations from other attorneys, correct?

“Absolutely. And these fees are just like another form of insurance. You just want the insurance of a corporation, and you want the insurance of a properly maintained corporation. It's not expensive to do. And again, it's really hazardous if you don't.”

Blair, any comments about people who don’t want to spend the money on asset protection and end up losing everything?

“Well, yeah, I was just going to say what you mentioned, Garrett, is that a lot of these people get their corporation formed online. They don't have a relationship. If you're going to move into the B quadrant or you really want to protect something, you need to have a team you can consult with, somebody that you trust, learn to trust them. I mean, I don't know who's at the other end of that online form I just filled out. I don't know what their credibility is.

But the number of times that I sit down with you and talk about a situation, talk it through and you send me in the right direct, these are critical things that an entrepreneur needs to do. You don't shut that off and say, "Well, I don't have enough money to do it," because like you said, it can not only cost you your assets, but some of your hard-earned intellectual property and all that stuff can be all ripped off and stolen by other people that have more capital than you.”

Garrett, how does someone make sure that they are following the procedures?

“Well, we want to make sure that when the corporation was formed, not only did you have the articles, you have the operating agreement, the meeting minutes, the issuance of certificates. All of that is important on an annual basis. You need to have meeting minutes, showing that you had a meeting.

A lot of promoters, Robert, say that with an LLC, you don't need to have a meeting. And when you get into court, the judge and jury goes, "Wait a minute. How do you run a business, an LLC, or a corporation for 10 years without a meeting? It's just not realistic." And so you need to follow all these formalities.”

You can’t put your seatbelt on after you crash, as you say, Garrett. So, hiring you first is most important, correct?

“Well, and if you've been sued, Robert, it's too late to set up an entity. Like you say, I mean, the court is not going to give you the protection. The attorney's going to have a field day with the fact that you try to ... It's really called a fraudulent conveyance or transaction. You can't do a fraudulent transaction trying to put your personal assets into a corporate after you've been sued.”

You’ve talked in your books about separating your personal assets from your LLC right off the bat, to avoid creating blurry lines. Is that correct?

“That is absolutely true. You are not going to use your personal bank account to fund that Indiana, LLC. You need a separate Indiana LLC bank account to show that there's a distinction between business and person.”

Any comments, Blair?

“Yeah. The education that Garrett provides is priceless because you work so hard to build whatever you're building and it can be gone in an instant for no good reason other than just being careless. And so, in the past, when I started my businesses, I said, "Well, I can't afford that. I can't protect this." And you know what? It comes back, particularly if you're ... And here's the funny thing. It comes back if you're successful. If you're not successful, no one is going to pay any attention to you. But once you become successful, then you become a target.”

Garrett, tell us why you are in Nevada? Is it better than working out of California?

“Oh, Robert, there's so many reasons now. But Nevada has great asset protection. It's one of the top states for forming corporations and LLCs along with Wyoming and Delaware. As Blair knows, I like to ski. So that's another reason I'm here by Lake Tahoe. But no, Nevada is a great state for business, for protection, and for not many regulations compared to California.”

Let’s say I’m a businessman in Japan or Mexico. Can I still form an LLC or corporation in Nevada?

“You can. In certain countries, Panama, the Wyoming, or Nevada LLC is accepted. But if you're going to be doing business in the United States from Japan or another country, certainly a Nevada corporation, which offers great asset protection is the way to go. And we have a number of foreign clients, Robert, who set up in Nevada for their American activities.

There's no income or corporate tax because of gaming. Please come to Nevada and drop a bunch of money into casinos so I don't have to pay tax. We have the no income or person or corporate tax.”

Any comments on your new book ‘Veil Not Fail’?

“Well, we talk about a number of tips, Robert. They're not hard to follow. As I've mentioned in the book, you want to make sure you have a registered agent. You want to make sure you have a separate bank account. You want to make sure that you provide corporate notice when you assign a check. It should be in the name of the LLC or Inc. instead of in your personal name. These are all simple things that you can do that we cover in the book.

But if you have a corporation or an LLC right now and you're not following these rules, you need to take a step back, analyze where you're failing and then read the book, Veil Not Fail, because all the tips and strategies are in there.”

What do you think about ‘ambulance chasers’?

“Well, the system incentivizes them, Robert, and we're not going to change that system. The system also allows us to have LLCs and corporations. So, I always recommend that my clients have a personal umbrella policy of insurance. Home and auto and extra million dollars of coverage is only $400 a year.

Then have all of your assets in LLCs. If there's a car wreck, which is one of the biggest risks out there, there's plenty of insurance for the attorneys to go after. And then your other assets are in LLCs. It's not a good use of an attorney's time who's on a contingency. They only get paid when they collect. It's not a good use of his time to fight through a Nevada or Wyoming LLC. So, a combination of insurance and entities are what you need in this day and age.”

Every time Kim and I buy something new, we have a new entity formed. What is that called?

“Well, it's called prudent. I mean, you're doing what you're supposed to do. You're supposed to protect your assets right off the bat. If you have an asset in your individual name for three months and something bad happens during that three-month period, you are personally responsible for that claim. Don't wait for three months because then it'll be three years. You need to put that asset into an LLC right off the bat. It's your favorite street or river or whatever. You just don't use your personal name on those entities because people are out there looking. The more you have, as you said, Robert, the bigger the target you are. And this society is geared towards litigation. That we're not going to change.”

If I have more than one entity, and one gets hit by a lawsuit, the other one(s) are still safe, is that right?

“That's the theory. So, you have a duplex in one LLC and a fourplex in another LLC. If you get sued on the duplex, they can't reach the fourplex. It's in a separate LLC, which also means you don't want to put 10 properties into one LLC. If they sue on the duplex, they can reach the other nine properties as well. So, you want to segregate the assets between various LLCs.

You also have a brokerage account. You can put that into an LLC as well to get much better protection than holding brokerage assets, gold, and silver, et cetera, in your individual name.”

What other books do you have that people should get?

“Well, Start Your Own Corporation gets you into the idea of why you form these entities. Loopholes of Real Estate talks about the tax and legal strategies of investing in real estate. And then Veil Not Fail allows you to understand why you have to maintain these entities to stay protected.”

Final words, Garrett?

“Final word is that they don't teach this in school, Robert. You have to get this information on your own. And if you walk into an attorney's office without knowing what a corporation or an LLC is, you're going to be spending a lot of extra money to be educated. So that's why your series of books, Robert, has been terrific for so many of my clients. They come to me. They're somewhat educated on what they need. So, the books have just been terrific. And I just really am grateful to be a part of The Rich Dad Series.”

And Blair?

“I just am reminded what you always say that business is a team sport, and you got to have the best people on your team. And what you said, Garrett, a few minutes ago, you got to be willing to upgrade. You got to be willing to upgrade them, take them to the next level.

If your tax accountant's not doing what they need to do or your attorney's not following up ... I mean, I look forward to ... I get those little messages from your office, "Hey, corporate minutes, remember that?" It's like, "Oh my God, thank you so much. I would've never ... It was so out of my mind." So, it requires a team. And so, thank you. It's honored to be part of the team with you.”

You can find more about Blair Singer at www.blairsinger.com and Garret Sutton can be found at www.sutlaw.com