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How to Set Up Single Member LLCs

You must be very careful when you are the only owner of your LLC. Single member LLCs require extra planning and special language in the operating agreement.

One example: What happens when the single owner/member passes? Who takes over? It may be months before that is sorted out, and your business will falter without a clear leader.

Difficulties of Owning a Single Member LLC

You want the asset protection benefits of a limited liability company. But what if you don’t want any partners? What if you want to be the sole owner of your own LLC?

You can do that with a single owner LLC (sometimes known as a single member LLC).

But you have to be careful.

Before we discuss how to properly set up and use a single owner LLC we must acknowledge a nationwide trend. Courts are starting to deny sole owner LLCs the same protection as multiple member LLCs. The reason has to do with the charging order.

The charging order is a court order providing a judgment creditor (someone who has already won in court and is now trying to collect) a lien on distributions. A chart helps to illustrate:

Illustration showing typical multi-member LLC structure

John was in a car wreck. Moe does not have a claim against XYZ, LLC itself. The wreck had nothing to do with the duplex. Instead, Moe wants to collect against John’s assets, which is a 50% interest in XYZ, LLC. Courts have said it is not fair to Mary, the other 50% owner of XYZ, to let Moe come crashing into the LLC as a new partner. Instead, the courts give Moe a charging order, meaning that if any distributions (think profits) flow from XYZ, LLC to John then Moe is charged with receiving them.

Moe is not a partner, can’t make decisions or demands, and has to wait until John gets paid. If John never gets paid, neither does Moe. The charging order not only protects Mary but is a useful deterrent to frivolous litigation brought against John. Attorneys don’t like to wait around to get paid.

But what if there is only a single owner?

Illustration that shows a single member LLC structure

In this illustration there is no Mary to protect. It’s just John. Is it fair to Moe to only offer the charging order remedy? Or should other remedies be allowed?

How the Court Has Ruled Against LLCs With One Member

In June of 2010, the Florida Supreme Court decided the Olmstead vs. FTC case on these grounds. In a single owner LLC there are no other members to protect. The court allowed the FTC to seize Mr. Olmstead’s membership interests in order to collect. Other states have followed the trend.

Interestingly, even two of the strongest LLC states have denied charging order protection to single owner LLCs in limited circumstances.

In September of 2014, the US District Court in Nevada decided the bankruptcy case of In re: Cleveland.

The court held that the charging order did not protect a single member LLC owner in bankruptcy. Instead, the bankruptcy trustee could step into the shoes of the single owner and manage the LLC. This is not surprising since bankruptcy trustees have unique and far reaching powers, which are routinely upheld by the courts. (But know that, incredibly enough, a bankruptcy trustee can’t get control of the shares of a Nevada corporation. This is a special planning opportunity available to Nevada residents – or those who may become Nevada residents.)

In November of 2014, the Wyoming Supreme Court rendered a surprising verdict in the Greenhunter case.

The court held that the veil of a single owner LLC could be pierced. The issue centered on a Texas company’s use of a Wyoming LLC it solely owned. The LLC was undercapitalized (meaning not enough money was put into it) and it incurred all sorts of obligations. It wasn’t fair for the Texas company for the single owner to hide behind the LLC. The fact that a single owner LLC was involved was a material issue. The court pierced through the LLC and held the Texas company liable for the LLC’s debts.

Even though these are fairly narrow cases, both Nevada and Wyoming have held against single member LLCs. Again, this is the trend.

Luckily there are some things you can do to protect your assets as a single member LLC…

Strategies for Protecting Your Assets

One strategy is to set up a multi-member LLC structured in a way that gives the intended single member all of the decision making power. For example, parents can have adult children over 18 become member(s) or for those under 18 you can use a Uniform Gift to Minors Act designation. You may want to use an irrevocable spendthrift trust for children or others. A local estate planning attorney can help you set these up correctly.

But what is the smallest percentage you have to give up for the second member? Could you give up just 1/100th of 1 percent? Most practitioners feel that the percentage should not be inordinately low and that 5% is a suitable second member holding. So the ideal structure would be that John owns 95% of the LLC and the other 5% is owned by a child (or other family member) and/or an irrevocable trust.

Accordingly, in a state that doesn’t protect single owner LLCs, you have an excellent argument for charging order protection. There is a legitimate second member to protect. To further that legitimacy it is useful to have the second member participate in the affairs of the LLC. Attending meetings and making suggestions recorded into the meeting minutes is a good way to show such involvement.

But what if you don’t want to bring in a second member?

There are plenty of good reasons to set up a sole owner LLC. Other owners can bring a loss of privacy and protection. And if you paid 100% for the whole asset, why should you bring in another member anyway? Or, what if you don’t have any children or other family members that you want to bring in?

If a single member LLC is truly the best fit for you, there are three key factors to know and deal with.

1. The Corporate Veil

Many states’ LLC laws do not require annual meetings or written documents. Some see this as a benefit but it is actually a curse.

If you don’t follow the corporate formalities (which now apply to LLCs) a creditor can pierce the veil of protection and reach your personal assts. With a single owner LLC this is especially problematic. Because you are in complete management control it may appear that you aren’t respecting the entity’s separate existence or that you are comingling the LLC’s assets with your own personal assets. Without a clear distinction of the LLC’s separate identity, a creditor could successfully hold you personally responsible for the debts of the LLC (as they did in Wyoming’s Greenhunter case above.) Maintaining proper financial books and records and keeping LLC minutes can help demonstrate a definitive and separate identity for your single owner LLC. You must work with a company which appreciates the importance of this for single owner LLCs.

2. Different State Laws

LLC laws vary from state to state. Some states offer single owner LLCs very little protection. The states of California, Georgia, Florida, Utah, New York, Oregon, Colorado and Kansas, among others, deny the charging order protection to single owner LLCs.

Other states offer single owner LLCs a very high level of protection in traditional circumstances. So we have to pick our state of formation very carefully. In order to deal with this trend against protection, we use the states that do protect single member LLCs.

Wyoming, Nevada, Delaware, South Dakota and Alaska (collectively “the strong states”), have amended their LLC laws to state that the charging order in standard collection matters is the exclusive remedy for judgment creditors – even against single owner LLCs.

So how do we use these state laws to our advantage? Let’s consider an example:

A chart showing a properly structured single member LLC

In this example, John owns a fourplex in Georgia and a duplex in Utah. Each property is held in an in-state LLC (as required to operate in the state). The Georgia and Utah LLCs are in turn held by one Wyoming LLC. (This structure works in every state except California, which requires extra planning. Be sure to take advantage of our free 15-minute consultation if you are operating or residing in California).

I break down potential lawsuits into two different types of attacks: Attack #1, the inside attack and Attack #2, the outside attack.

In Attack #1, the inside attack, a tenant sues over a problem at the fourplex owned by GEORGIA, LLC. They have a claim against the equity inside that LLC. Whether GEORGIA, LLC is a single owner or multi-owner LLC doesn’t matter. The tenant’s claim is against GEORGIA, LLC itself. Importantly, the tenant can’t get at the assets inside UTAH, LLC or WYOMING, LLC. They are shielded since the tenants only claim is against GEORGIA, LLC.

The benefit of this structure comes in Attack #2, the outside attack. If John gets in a car wreck, it has nothing to do with GEORGIA, LLC or UTAH, LLC. But, the car wreck victim would like to get at those properties to collect on the judgment. If John held GEORGIA, LLC and UTAH, LLC directly in his name, the judgment creditor could force a sale of the fourplex and duplex since neither state protects single owner LLCs.

However, since John is the sole owner of WYOMING, LLC he is protected by Wyoming’s strong laws. The attacker can only get at WYOMING, LLC and gets a charging order, which means they have to wait until John gets a distribution and therefore could possibly never get paid. If John doesn’t take any distributions, there’s no way for the attacker (or his attorney) to collect. A strong state LLC offers a real deterrent to litigation, even for single owner LLCs.

3. Operating Agreement

Like bylaws for a corporation, the Operating Agreement is the road map for the LLC. While some states don’t require them, they are an absolute must for proper governance and protection. A single owner LLC operating agreement is very different than a multi-member operating agreement. 

For example, if a single owner transfers their interest in the LLC, inadvertent dissolution of the entire LLC can occur. This is not good. Or, again, what if the sole owner passes? Who takes over? Our Single Member Operating Agreement provides for a Successor Manager (a person you pick ahead of time) to step in.

The best way to deal with these issues, as well as others, is to have a specially drafted operating agreement to properly govern your Single Member LLC. Corporate Direct provides such a tailored document for our clients. When it comes to business and investments, you must do it the right way.

LLC vs Corporation

Which is Best?

Choosing the right entity can be one of the most important decisions a business makes. Business owners and investors may find themselves asking which to pick, LLC vs Corporation. To help make your decision a little easier, we’ve compiled a list of helpful comparisons that will teach you the basic differences among entity types.

Who should use which entity?

LLC

LLCs are great for people who want an entity to hold real estate or other appreciating assets. They are a popular choice for investors and entrepreneurs because of the flexible taxation and great asset protection.

Corporation

C Corporations are great for businesses that sell products, have a storefront and have employees. Businesses that offer services may find the taxes of a C Corp to be too high because of specific tax laws applied to Personal Service Corporations (PSC). It’s also advised not to hold appreciating assets in a C Corp because of the tax treatment of asset sales.

S Corporations are a good choice for people who would like the protection and structure of a corporation, but would be classified as a PSC by the IRS. They are also great for businesses that have significant start-up costs because of their flow-through taxation.

Taxes

LLC

LLCs can choose how to be taxed – either as a disregarded single member entity (where the tax reporting flows directly onto the sole owner’s personal return) or as a multiple member partnership. LLCs can also be taxed as an S Corporation or C Corporation. No other entity has this flexibility.

Corporation

C Corporations

A C Corporation has the widest range of deductions and expenses out of all the various entity types. This is especially true in the case of employee fringe benefits. If you own a C Corporation, you can set up medical reimbursement and other employee benefits and deduct the costs associated with running these programs from your corporate taxes. It’s also worth noting that as a C Corporation you pay an initial rate of 15% on earnings up to $50,000.

While you have access to a wide range of deductions and the ability to set up fringe benefits without taxation, the biggest tax disadvantage of C Corporation is the “double-taxation” issue. Double-taxation can occur when a C Corp has a profit at the end of the year that it would like to distribute to its shareholders. The C Corp has paid taxes on the profit, but once it gets distributed to the shareholders, they also have to declare the dividends they receive on their personal tax returns at their own tax rate.

You may also want to consider an S Corporation if your company’s primary product is services to the public, as you will be taxed as a PSC with an initial rate of 35% instead of the 15%. The IRS does this to stop people from using a corporation to pay less in taxes for what is essentially a salary.

S Corporations

S Corporations are what is called a flow-through entity (similar to an LLC). Unlike a C Corporation, an S Corporation pays no tax on the corporate level. The shareholders only have to pay taxes on the individual level. This can be beneficial in some cases, but shareholders who make a high income from distributions will pay higher taxes. As far as benefits are concerned, S Corps may still write off the cost of benefits, but shareholders who control more than 2% of the entity must pay taxes on the benefits they receive.

S Corporations are commonly used to avoid the PSC tax rate set by the IRS. A corporation is considered to be a Personal Service Corporations (PSC) by the IRS if more than 20% of the corporation’s compensation cost for its activities of performing personal services is for personal services performed by employee-owners and the employee-owner owns 10% or more of the stock. Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts.

Since an S Corporation is a flow-through entity and shareholders pay taxes on the individual level, a modest salary with passive income may mean lower taxation. To determine what’s best for you and your business, you should always talk with your CPA or legal advisor.

Shareholders and Owners

LLC

An LLC does not issue shares, but it can have multiple owners (called members) who all share a percentage of the company.

Corporation

C Corporations

C Corporations allow for an unlimited number of shareholders, there is no limitation on who can hold shares and no restrictions on what types of shares can be held (such as preferred vs. common). A C Corp is perfect for a company looking to go public.

S Corporations

S Corporations are a bit more restricting. All shareholders of an S Corp must be Individuals (not entities) and they must be U.S. citizens. The company can only have 100 shares issued, and the shares can only be of one type.

Asset Protection

LLC

A key feature of the LLC is charging order protection. In strong states like Nevada or Wyoming, if the owner of a business gets sued, an attacker can only get a charging order (a lien to the distributions of the LLC). If there are no distributions, the attacker gets nothing. The charging order in most cases is contingent on the entity having at least two owners, but Nevada and Wyoming have protections for the single member LLC.

It should be noted that in some states, like California, Georgia and New York, the court may still order a sale of the businesses assets.

Corporation

A Corporation is an entirely separate and independent legal entity from its owners (or shareholders) and there is a separation between ownership and management. As such, the management and shareholders of a Corporation generally are protected from personal liability for the Corporation’s liabilities and obligations. Although shareholders of a Corporation may be liable for the amount they have invested in the Corporation, their own personal assets usually are protected. This limited liability feature also applies to directors, officers, and employees of a C Corporation.

However, there is an issue in the asset protection of a Corporation. If you own shares in a corporation and are sued personally (i.e. after a car wreck), a judgment creditor can reach your shares in the corporation. If you are the majority owner, the attacker now controls your business by virtue of share control. Nevada is the only state that extends charging order protection (as in an LLC) to corporate shares.

Foreign Investors

LLC

In general, whether you’re a foreign real estate investor or one in the U.S., the limited liability company is the best entity. The LLC is great for both asset protection and has flow-through taxation, and they are affordable to set up and maintain. Since they have flexible taxation, they can be set up for easier taxation management too. Often Canadians will use an LLC taxed as a C Corporation for ease of use, and Australians use them as-is for real estate investment of their retirement monies. It’s always best to consult your accountant about which taxation system would best fit your business.

Corporation

C Corporations

C Corporations are a good to foreign owners for the same reasons stated in the sections above, but It may be more popular with countries that have similar taxation. For example, most Canadians prefer to use a C Corporation because the taxation of a C Corporation most closely resembles that of their home country. When the systems are closely related, it makes them easier to manage.

S Corporations

S Corporations are the only U.S. entity that cannot be used by a foreign investor.

 

Questions?

Determining which entity is right for you can be challenging. You want to ensure that you are getting set up properly right from the start.

If you need help figuring out what entity is right for your business, set up a free 15-minute consultation with an Incorporating Specialist.

Garrett Sutton Recognized for Lifetime Achievement Member by America’s Top 100 Attorneys

On March 23, 2018 America’s Top 100 Attorneys announced the Lifetime Achievement selection of Garrett Sutton, Esq. among America’s Top 100 Attorneys®. Lifetime Achievement selection to America’s Top 100 Attorneys® is by invitation only and is reserved to identify the nation’s most exceptional attorneys whose accomplishments and impact on the legal profession merit a Lifetime Achievement award.

Garrett Sutton Top 100 Attorney

Selection is not achieved based on a single accomplishment or a single great year of success, but rather on a lifetime of hard work, ethical standards, and community enriching accomplishments that are inspiring among the legal profession.  To help ensure that all attorneys selected for membership meet the very high standards expected for selection, candidates for lifetime membership are carefully screened through comprehensive Qualitative Comparative Analysis based on a broad array of criteria, including the candidate’s professional experience, lifetime achievements, significant case results, peer reputation, and community impact.  With these extremely high standards for selection to America’s Top 100 Attorneys®, less than one-half percent (0.5%) of active attorneys in the United States will receive this honor — truly the most exclusive and elite level of attorneys in the community.

For more than 30 years, Garrett Sutton has run his practice assisting entrepreneurs and real estate investors in protecting their assets and maximizing their financial goals through sound management and asset protection strategies. The companies he founded, Corporate Direct and Sutton Law Center, have helped more than 12,000 clients protect their assets and incorporate their businesses.

Garrett also serves as a member of the elite group of “Rich Dad Advisors” for bestselling author Robert Kiyosaki. A number of the books Garrett Sutton has authored are part of the bestselling Rich Dad, Poor Dad wealth-building book series.

Garrett attended Colorado College and the University of California, Berkeley, where he received a B.S. in Business Administration in 1975. He graduated with a J.D. in 1978 from Hastings College of Law, the University of California’s law school in San Francisco. Garrett is licensed in Nevada and California. Garrett is a member of the State Bar of Nevada, the State Bar of California, and the American Bar Association. He has written numerous professional articles and has served on the Publication Committee of the State Bar of Nevada. Additionally, He has appeared in the Wall Street Journal, TIME, Credit.com and other publications.

He serves on the boards of The American Baseball Foundation, based in Birmingham, Alabama and The Nevada Museum of Art and Sierra Kids Foundation, both based in Reno, Nevada.

Garrett and his law firm, Sutton Law Center, have offices in Reno and Minden, Nevada, Jackson Hole, and Wyoming. The firm represents thousands of corporations, limited liability companies, limited partnerships and individuals in their real estate and business-related law matters, including incorporations, contracts, and ongoing business-related legal advice and accepts new clients. The firm also assists its clients to find and analyze appropriate real estate projects.

Garrett enjoys speaking with entrepreneurs and real estate investors on the advantages of forming business entities. He is a frequent lecturer for small business groups as well as the Rich Dad Advisors series.

Distributing LLC Money

You’ve set up your LLC. Now it’s time to make money, and flow the profits into your bank account. It’s time to think about how you will be distributing LLC Money between bank accounts. In the example we’ll use in this article, you have transferred title in a real estate rental property (a duplex) into your new LLC, which is called XYZ, LLC. You have also, as is required to follow the corporate formalities, set up a bank account in the name of XYZ, LLC. You haven’t hired a property management company yet as you are going to try managing the property yourself.

In the first month, your two duplex tenants pay the rent on time. You are thinking to yourself: “This is good. This is how it’s supposed to work.” You deposit the rent checks, which are properly made out to XYZ, LLC, into the new XYZ, LLC bank account. You have a mortgage and trash pick-up payment to make, so you write two checks against the new LLC bank account to cover those obligations.

Glory be, after those payments, at the end of the month you have a profit! What do you do?

You could pull some of the money out, transferring it from XYZ, LLC to your personal account, knowing that you’ll have to pay taxes on a portion of it at some point. More likely, you may leave the money in XYZ, LLC and build up a reserve of cash to be able to cover any unforeseen issues. Some owners may leave the money in the LLC account until near the end of the year. After speaking with their CPA to understand how much income is sheltered by depreciation and how much tax they’ll owe they will pull enough money out of XYZ, LLC to pay their tax obligation, if any, as well as take a profits distribution for themselves at the end of the year.

Things are working well and you decide to invest in another rental property, a fourplex. You’ve heard that by putting your new fourplex into XYZ, LLC you are creating a target rich LLC. If a tenant at the duplex sues XYZ, LLC for a faulty condition they could not only reach the equity in the duplex but also in the new fourplex. They have a claim against the LLC and on an inside attack they can get what is inside XYZ, LLC, which would be both the duplex and fourplex. You don’t want to do that.

So you set up ABC, LLC to take title to the fourplex. Following what you did with XYZ, LLC you set up a new LLC bank account for ABC, LLC and deposit tenant checks made out to that LLC into the new ABC, LLC bank account.

Along the way you come to appreciate that the state in which ABC, LLC and XYZ, LLC were formed offers weak asset protection for the outside attack. The inside attack, where a tenant sues the LLC directly, offers the same protection in all states. But the outside attack where, for example, a car wreck victim has a personal claim against you and is suing from the outside to get at your assets, varies from state to state. California, New York and Utah are weak states. The car wreck victim and their attorneys can get at your valuable real estate to satisfy a claim. Wyoming, Nevada and Delaware are strong states featuring charging order protection, which is briefly described in this short video. For more detail, see my book, Loopholes of Real Estate.

LoopholesRE Sutton.Front Cover.Final .HiRes .2019
For now, we want you to focus on distributing LLC money through this new structure. As before, the new holding LLC we form in Wyoming opens its own bank account under the name Padre, LLC.
How to Properly use LLC Bank Accounts

 The profits you generate from the two title holding LLCs on the top line will, whenever you want, be distributed to the new Wyoming holding LLC. We don’t want to directly distribute to your personal bank account moneys from XYZ, LLC and ABC, LLC because you don’t personally own them anymore. Instead, you own Padre, LLC, which in turn owns XYZ, LLC and ABC, LLC. So the money flows from XYZ, LLC and ABC, LLC to Padre, LLC. Whenever you want to take a distribution you will take it from Padre, LLC, which is the entity you directly own. XYZ, LLC and ABC, LLC are technically owned by Padre, LLC and not you. But that is good, because it provides excellent asset protection when a strong state is used. As well, Padre, LLC is a good place to hold money because it is asset protected in Wyoming. If you hold the money in your personal bank account you are not as protected.

Some people will complain that in the structure example above, a total of three bank accounts is not needed. Two points are critical here. First, it is useful to know that with online banking and fairly low minimum balance requirements the use of three separate accounts is neither burdensome nor expensive. Second, and more importantly, by not using separate bank accounts you run the risk of a creditor seeking to pierce the veil of your entity. You must not commingle money between personal and separate business accounts. There must be a clear line of money flows from duplex tenants into XYZ, LLC, from that entity into Padre, LLC and from the Wyoming holding LLC into your personal bank account. You cannot skip a step and risk being held personally liable for a claim.

Again, distributing LLC money correctly is not going to be a burden. And even if it was it is required for you to maintain your asset protection edge, so just do it. Work with your CPA on the timing of distributions and payment of taxes and all will be fine.

Besides, it’s how everyone else does it anyway.

10 Rules for Asset Protection Planning

Asset protection planning defends your assets from future creditors, divorce, lawsuits or judgments. How can you best plan to protect your personal and business assets? Here are some guidelines to implement strong asset protection.

  1. Plan Your Asset Protection Strategy BEFORE You’re Sued
    Once a lawsuit has arrived, it’s too late to put protections in place and there is little you can do. Take action before a claim or liability arises. In fact, a strong asset protection structure can discourage lawsuits because the better protected your assets are, the stronger a deterrent it is.
  2. Keep Your Personal and Business Assets Separate
    If you don’t insulate your own assets from those of your business, you could be in trouble. If you operate your business in the form of a sole proprietorship or as a general partnership, these businesses are not registered entities, which means that your personal assets are not insulated from those of your business.
  3. It’s Risky to Be A Sole Proprietor
    As an example, if you’re a sole proprietor and an angry customer sues you, any assets you own such as your house or car are not protected. Nor are financial assets such as your bank account. These can all be taken should a judgment be found against you.
  4. A Two-Man Partnership is Double the Risk
    Maybe you have thought about forming two-man partnership with your friend. This may perhaps be an even worse idea than operating as a sole proprietorship. What this means is that you are as liable for your friend’s errors as you are for your own. You are also liable for anything purchased in the name of your partnership. Remember that one partner’s signature is enough to bind both partners to a debt or other type of obligation. Again, this leaves you unprotected and without any recourse should something happen; you could be left holding the bag.
  5. Use a Registered Corporate Entity for Asset Protection
    To protect yourself, use a registered corporate entity. Most people don’t realize there’s a risk in keeping assets and property in your name, which also means keeping the liability and the risk. To succeed in business, to protect your assets and to limit your liability, you want to select from one of the good entities / structures that are truly separate legal beings. They are:
    • C Corporations
    • S Corporations
    • Limited Liability Companies (LLCs)
    • Limited Partnerships (LPs)

    Each one has it’s own advantages and specific uses. Each one is utilized by the rich and knowledgeable in their business and personal financial affairs. And, depending on your state’s fees, each one can be formed for $800 or less so that you can achieve the same benefits and protections that sophisticated business people have enjoyed for centuries.

  6. Meet Annual Requirements so That Legal Protection Remains Intact
    You’ll need to keep your company’s registration up-to-date, hold annual meetings and keep annual minutes, keep business funds separate from your own, and avoid signing any business-related documentation in your name. This is known as maintaining the corporate veil and we provide this service to many of our clients. This keeps your own assets separate from those of your business. By the same token, you are also protected from any debts or disasters incurred by your business.
  7. Protect Your Business Assets in a Business Entity
    You need to protect your business and real estate assets from yourself. A limited liability company is an excellent way to help protect key assets. (Learn how to become incorporated now.) For example, if you have a rental property, you should hold assets either in a limited partnership or in an LLC. These protect you from personal liability if anything should happen on the property and it also provides you another advantage. Should someone become injured on your property, you are protected from being sued directly by the tenant. Remember that the business’s assets are still at risk of suit should the tenant decide to sue. However, if you have adequate insurance, you can help protect yourself from having the claimant lay claim to your assets so as to satisfy your obligation. This strategy comes with a caveat though.
  8. Ensure You Have a Comprehensive Commercial Insurance Policy
    A comprehensive commercial insurance policy can help you keep the property instead of having it end up as a part of a court-ordered settlement. What should you look for?
    • The liability insurance should cover injuries to third parties on your property.
    • It should cover trespassing, especially if you have undeveloped or vacant land.
    • If you have people working on your property as your employees, you should also have Worker’s Compensation insurance.
    • The insurance should also have “increased cost of construction” additions if your building should become damaged or require reconstruction. That means you’ll be covered at today’s construction prices instead of those of previous years.
    • If you are a landlord, “loss of rents” riders can help you recover costs in the event your building is damaged and uninhabitable so that you can pay relocation costs or receive income from the property while it’s being rebuilt to offset right losses.
    • A final consideration is a “higher limits” rider, so that you have extra protection in the event a catastrophic claim is filed in one of these categories.
  9. Use Entities as a Second Line of Defense
    It is extremely important to carry adequate and proper insurance coverage, but as we know, insurance companies have an economic incentive to avoid covering all claims. They find reasons to deny coverage. So while you will have insurance you will use entities as a second line of defense to protect your personal assets from your business claims.
  10. Avoid Incorporation Scams
    You need to know that there are a number of other corporate information scams in the marketplace. A popular one is the $99 incorporation. For just $99, they claim you will be bulletproofed and asset-protected. “C’mon down. We’ll set you right up”, they say.

    We have tested such services to see how they could possibly do all the work necessary to completely and properly form and document a corporation or LLC for just $99. These providers fall into two camps.

    1. The first camp does the minimal work needed to form an entity. They file the articles. That’s it. Once you pay the $99 they will no longer take your phone calls or questions. Eventually you will be sent a document with a state seal on it indicating that you are incorporated. But you will not be sent the minutes, the bylaws, or any issued stock – all of the other components necessary to be a complete corporation. Of course, if you hadn’t read this article, you would probably think in your blissful ignorance that for just $99 you were protected. You are not.
    2. The second camp uses the $99 as a come-on. They offer an a la carte menu in which the $99 is just for the filing of the articles. The bylaws are another $350. The meeting minutes are $250, and so on. By the time you are done they have gained your confidence and that $99 has ballooned up to $2,000 to $3,000 for just one entity.