Asset Protection Using Multiple Entities
1. Why you need asset protection
Simply put, a court order can freeze all your assets. You won’t be even able to touch your bank accounts. Attorneys will tell you that It doesn’t take much to be in such a situation. This is why a properly structured asset protection plan is essential.
Many of our clients use multiple Nevada entities for asset protection. We have seen anyone from real estate investors to independent contractors utilize this strategy.
2. Why use multiple entities
Attorneys will tell you that an LLC offers great protection, simply because of the fact that the LLC laws doesn’t allow a lawsuit to be filed against a member of the LLC for the liabilities of the LLC. Whereas the main officers of a corporation are routinely named as defendants in a lawsuit filed against the corporation. Therefore, from asset protection point of view an LLC is probably a better entity than a corporation. See why LLCs maybe better.
However, a creditor can obtain a judgment from a court against a member of an LLC and proceed with what is called a ‘Charging Order’ remedy. A charging order remedy will allow a creditor to collect any cash distribution made to the member by the LLC. As shown in the case at the U.S. Bankruptcy Court, In re Albright, No. 01-11367 (Colorado. Bankruptcy. April 4, 2003): a single member LLC is not protected against a Charging Order. In layman’s language if the LLC has a manager, the manager can withhold any distribution to the member in question. However, it is important that this is specifically mentioned in the Operating Agreement of the LLC. But this case demonstrated that a single member LLC doesn’t offer you the protection you deserve. This is why attorneys will tell you that if you do not have multiple members in your LLC, you are not protected. This is the reason you need multiple members in an LLC. These members can be individuals or entities.
3. The strategy that you can consider
A. With 2 LLCs:
Many books and articles have been written by asset protection experts and attorneys; and the following is a strategy that many agree on. Anyone can consider using this strategy. Under this strategy, we set up the Manager LLC first. Next, we form another LLC to be the main LLC. Therefore, the main LLC should work as the main business entity and the Manager LLC should act as the manager. You become the second member of the main LLC. Or we can provide privacy so that your name is not published in the public List of Members/ Managers of the main LLC. At the same time you will be members of the Manager LLC. As far as Taxes, everything will flow to you, meaning you will pay for taxes on your own 1040. Do confirm this with your tax advisor..
There can be additional entities that can be added to the list of members of the main LLC in consultation with an attorney at a later date. An attorney may advise you to setup a Trust to be a member. Or, you can add another entity such as a Family Limited Partnership or a family member as members.
Note that if you have multiple lines of business, attorneys usually advise to put each business in a different LLC. This is because if you do not separate your businesses, then a creditor can utilize what is known as ‘Attachments and Liens’ to include everything in order to collect the debt.
B. With 1 LLC and 1 Corporation:
It works the same way as above, but in this case, the manager entity for the main LLC is a C-Corporation instead of another LLC. This is mainly done for income tax savings. Because in case of LLCs all income and losses flow to the members. But in case of a C-Corporation the corporation pays tax for the corporation and it doesn’t flow to the officers like in an LLC. Also corporate tax rate maybe lower tax than individuals. Therefore, if the main LLC has 2 members: 1 the C-Corporation and the other yourself; you may opt for the corporation to pay for the bulk of the income if it is beneficial to you. So if you are concerned about tax savings you may opt for this option.
4. Get started
Knowing the nightmarish scenario that can happen to you, you should put the Initial Asset Protection plan in place immediately. Note that a judge can throw out a structure if it is established after the date of initial act leading to a legal action against you. Therefore, you should not wait for something bad to happen. We offer the Initial Asset Protection Plan as the groundwork for more comprehensive and on going plan at a later that in consultation with a licensed asset protection professional.
This package comes with all of the other features of our Resident Agent service and includes the filing fees for each. It also includes a Nevada address, mail receiving and forwarding service for free and a Nevada phone number, if needed. You only pay for actual usage. Most importantly, it includes our free ongoing support.
– Nevada State filing fee for 2 entities
– Complete Registered Agent Service for 12 months
– Complete Nevada Address Package including Nevada Address and Mail Forwarding. Mail forwarding cost is extra.
Every subsequent year, your fee is $474 for LLCs (i.e. $350 payable to the state + $75 for Nevada Registered Agent Services + $139 for Nevada Address) and $774 for corporation (i.e. $650 payable to the state + $75 for Nevada Registered Agent Services + $139 for Nevada Address. Add $49 if you will need us to do the filing for you (we will prepare and email you the state forms for you to sign and send back to us to file with state of NV).
Also, we recommend adding privacy to the structure so that your name/ address are not published on the State public website. You will have the option to choose privacy service while ordering
It is important to draft the Operating Agreement/ ByLaws correctly and update it as needed. We will provide you with a customizable Operating Agreement/ ByLaws for each entity.
NOTE THAT IF YOU NEED TO FORM 2 INDEPENDENT NEVADA ENTITIES. (Unlike one being the manager of the other), please call us at 702-625-3886.