When structuring and planning any asset protection strategy, one of the more important factors is often how the asset protection entity or multiple entity structure is funded. While the funding of the structure itself is of paramount importance, one of the major factors is to create an asset protection structure that titles assets in a manner that takes the equity away from the person who is of primary risk, and whose assets are to be protected.
[Time to Read: 2.5 mins] As we’ve just ended the year, it is always important to remember to do proper annual minutes for your various business organizations.
Many corporations, limited liability companies, partnerships, and other business entities get tied up in other year-end business and ignore what is often perceived as minutia in the recording of annual minutes and year- end operational meetings. Others just forget to do them. Small businesses are particularly susceptible to ignoring this very important corporate obligation and tool.
When entering into the simplest of business deals with a partner, or group of partners in any corporate structure, such as partnerships, LLCs, shareholders, or corporations, many overlooked issues can arise.
Of particular concern are businesses related to ownership and operation of real estate or other physical assets. In these situations, the consent of only one of the owners is needed to transfer or sell an asset. Although there would exist a private right of action against an owner who engages in self-dealing at the expense of the partnership/corporation/LLC, the transaction may not be able to be set aside if the transferee/purchaser was acting in good faith. Even when fair market value is exchanged, such an action could go against the very purpose of the partnership/corporation/LLC’s intended purpose to begin with.
It is common for doctors and any other party who invests in real estate whether for a commercial medical building or other commercial/residential rental property, to lump all of their buildings into one entity. Each piece of real property, however, should be titled in a separate business entity, typically an LLC. LLCs provide benefits for real property holdings that other entities may not.
The separate entity provides specific protection against outside claims. However, if multiple properties are held under one entity, then any liability that arises with respect to one property can also expose the other properties to a creditor’s claims and the assets of the entire entity would be exposed. For example, in the event of a tenant lawsuit, a slip and fall, or some other kind of claim against one property, the creditor or plaintiff could reach everything within that entity since it is also the legal owner of other properties.