Blog | Personal Finance

Top 5 Reasons to protect your assets with a corporation, LLC, or LP

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Over 40 years, I've seen situations where people have lost everything for failing to properly protect themselves. These situations are entirely preventable in five easy lessons you didn’t learn in school.

  1. Litigation Nation in the United States

    We live in the most litigious society on earth where 15 million or more lawsuits are filed every year.

    In the state of Louisiana, they surveyed residents to ask: “How were you going to get rich?” The #1 way was to win the lottery, but the second way was to sue someone.

    There are all these attorneys advertising for people to come in and sue on various claims, be it a car wreck or some other grievance. It's important to know that the attorneys in these cases are on contingency, meaning they get a percentage of what is collected. They have an incentive to go out and sue people.

    You need to use the right mix of corporations and LLCs (limited liability companies) and in some cases LPs (limited partnerships) to protect yourself.

  2. Insurance Is Never Enough

    Insurance is your first line of defense, but we know that insurance companies have an economic incentive to not settle every claim.

    In fact, you need to look at the back page of the insurance contract in the small type for all the exceptions whereby they don't have to cover you.

    You can have a horrific claim where your insurance is not enough to cover you. Litigants can go after your personal assets once the insurance money runs out.

    Corporations and LLCs are your second line of defense.

  3. We Live In A Nation of Predators

    The FBI has identified a subclass within our society called professional litigants. These people will deliberately fall in a puddle at the supermarket, instead of telling the manager to clean it up, so they can sue.

    When Johnny the Plumber was starting his business, he didn't want to spend the money for a corporation or an LLC. His CPA said: “You're just getting started. You don't need to take that step.”

    Johnny started as a sole proprietor, so he was individually in charge of his business. He had no corporate or LLC protection.

    Johnny went to a flood on a property, that he didn't cause. In fact, he suspected the homeowner's son, but the homeowner was a predator and had to sue someone.

    Because Johnny was a sole proprietor, not only were his truck and tools subject to the claim, but all of his personal assets. The equity in his house, his bank accounts, all of his other assets were exposed and he lost them all to this predator.

    Don't be like Johnny. Take the extra step to form a corporation or LLC right at the start so that you have ongoing protection.

  4. The Difference Between Structure and Stealth

    Structure is setting up LLCs and corporations to protect your personal, real estate assets and business assets.

    Stealth, on the other hand, is where people recommend that you have other people own assets so you keep your name off everything. The downside of stealth is when you go into court and tell the judge what you own.

    For stealth to work, you have to commit perjury. We don't want you to go into court and get into even more trouble by lying to the judge.

    The court is going to respect the steps you've taken and that you have set up LLCs ahead of any claim. You have properly maintained them and if there's an award against you, the courts, in certain states like Nevada and Wyoming, won’t let the person suing you reach in and get at the assets.

    You do not want to engage in stealth, where you make the whole situation worse.

  5. Use Law To Your Advantage

    Wealthy and successful people are that way for a number of reasons, but one reason is they use the law to their advantage. They use corporations and LLCs to protect themselves, so they are not suffering from that one lawsuit that takes all of their assets away.

    The rich and successful and wealthy have used these strategies back to the Roman empire. You can learn more history on that by reading Start Your Own Corporation: Why The Rich Own Their Own Companies and Everyone Else Works For Them.

    The law applies to all of us equally, so you can take advantage of these same strategies for yourself in all 50 states. We are allowed to use corporations and LLCs to protect ourselves.

    In conclusion, it's important to act now. You never know when something can come out of the blue, as in Johnny the Plumber's case, to sue you in the everyday course of life.

    Day one, when you start a business or you buy that first piece of real estate, you need to be protected. You'll protect not only yourself but your family and you'll be able to get a good night's sleep.

    At Corporate Direct, we provide a free 15-minute consultation with an incorporating specialist. We'll get on the phone with you and come up with a plan for your unique situation.

    You can call (800) 600-1760 or email info@corporatedirect.com. We look forward to working with you to protect your assets today.

Original publish date: June 03, 2020

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