Many business owners do not take appropriate measures to protect their personal wealth from business liabilities until that wealth is in jeopardy. Once you are involved in a lawsuit or being pursued by creditors, it is usually too late to employ strategies to protect your business or personal assets. Nevada business owners have several asset protection options they can implement to protect their assets, including:
Practice Asset Segregation – This goal of this strategy is to minimize the number of assets held by you, personally, or the business, while still maintaining control. Shifting some of the equity from your business into a separate entity can provide added security against potential liabilities, as well as often provide tax savings.
Examples of this strategy might include:
- If you own the building from which your business operates, form a limited liability company (“LLC”), then transfer the land and building into the LLC and have your company rent/lease the building from the LLC.
- Transfer ownership of equipment, intellectual property, and/or other assets into separate entities and then lease/license the assets back to your business.
The benefit of this strategy is that only part of your business assets are at risk to a business creditor.
Use Series LLC’s – Series LLC’s are a type of LLC permitted by Nevada law, which allow the creation of a LLC that has an indefinite number of “Series”. The assets and liabilities of each Series are separate and distinct from the LLC and the other Series. The Series LLC is more efficient and cost-effective than a typical LLC, as the owner can create or terminate an individual Series without additional fees or reporting requirements to the state. In the asset segregation example above, a business owner could place the operating business in one Series, the land and building in another Series and the intellectual property in a third Series, rather than forming separate LLC’s to hold each asset.
Set-up an Asset Protection Trust – If properly set-up, an individual’s personal property assets, including the stock or membership interest of the business, can be placed in a Nevada Asset Protection Trust. The assets held by the trust can, after a two-year period, be completely protected from creditors of the business and personal creditors that are attempting to reach your personal assets. However, this is not something that can be done on the eve of litigation. Advance planning is critical and should be done with the guidance of an experienced business and estate planning attorney.
Establish a Captive Insurance Company – Captive Insurance Companies have been around for quite a while, but only fairly recently have become a tool utilized by small and medium-sized business for self-insurance, asset protection and tax mitigation purposes. The fact that over 90% of Fortune 500 companies currently have a captive insurance company is a testament to the usefulness of this mechanism for businesses. A few of the most attractive features of a Captive are deductive to the Company and then are that up to $1.2 Million in annual premiums paid by the Company to the Captive are not taxable to the Captive at the Federal or state level for income tax purposes, and all of the premiums paid into the Captive are 100% protected from creditors of the business. As the owner of the Captive Insurance Company, the profits of your business can be removed tax-free to the Captive and then can be grown on a pre-tax basis. The profits of the business transferred to the Captive can later be distributed from the Captive to you on a capital gains basis.
These are just a few strategies available to Nevada business owners to provide protection for business and personal assets. The most important thing to remember is that they need to be put in place before a creditor starts knocking on the door.
Nevantage Law Group focuses on asset protection strategies for Nevada business owners. Contact us for the legal expertise you need to protect personal assets from potential business liabilities.