Tweet

Protect Yourself From Our Litigious Society

Guest post by: Jim Williams

Article Overview: Running your business through a Corporation, whether it be a C-Corp or an S-Corp or perhaps an LLC, offers numerous benefits such as asset protection, tax savings, new sources of credit and more. Choosing the proper entity for your particular needs requires careful consideration.

Protect Yourself From Our Litigious Society

We have all seen the ads: "Have you been injured? You may be entitled to a Cash Award!" or "If you lost money in the stock market because of your broker's casino mentality, call us to recoup your losses!"



It's sad but true... If you accumulate wealth, you become a target for lawyers, the IRS or someone with less than you. The good news is that you can protect yourself from a devastating lawsuit.

Did you know that you have a 1 in 4 chance of having a potentially devastating lawsuit filed against you sometime in the future? There are currently between 80 and 90 million lawsuits filed in this country each year. That is over 150 suits per minute! Over 70% of the world's lawyers are right here in the USA, and we are adding new ones at a rate of 50,000 per year! What do you think those new lawyers are going to do to the number of lawsuits filed annually?

Unfortunately there is no way to completely avoid the possibility of being sued. There is, however, a way to reduce the risk of a devastating lawsuit, and to protect you personally should a lawsuit be filed. What you need to do is to arrange your affairs so that any activity that could create the potential for a lawsuit is transacted in a manner that will not affect your personal assets. Whether the activity is an operating business, rental property or any other "risk" operation, you need to separate yourself from those operations through corporate entities.

John D. Rockefeller once said: "Own Nothing, Control Everything"

If you do not own anything, or it "appears" that you do not own anything, no lawyer will sue you unless someone is willing to pay his exorbitant hourly fees. If, on the other hand, the lawyer sees substantial assets, he may very well take the case against you on a contingency basis. Attorney's contingency fees in the US currently run in excess of 10 billion dollars per year!

The best way to protect your personal assets from this "lawsuit-crazy world" is by forming a legal entity separate from yourself. This can be a Corporation, Limited Liability Company, Limited Partnership or some combination thereof. However, you must keep in mind that in order for an entity to give you the protection you need, it must be set up and operated properly, and the type of entity or entities must fit your particular situation. If set up properly, your entity will not only give you the protection you need, but will, in most instances, pay for itself many times over in fringe benefits and tax savings.

The benefits and protection afforded by properly structuring and separating your "risk" activities, like your business interests and real estate holdings, from your personal assets can be clearly seen with the following example:

John is a computer consultant that works out of a small office in downtown San Jose, California. His wife works with him part-time doing the books and records and other office duties, and she is his only employee. John's net income is currently $80,000 per year before taxes. He generates 75% of his business income from services, and another 25% from the sale of related software products. John and his wife had been operating as sole proprietors - under their own names, without a corporate structure -- for over 10 years until early in 2003. They had been able to acquire several rental properties over the years, and were becoming concerned about protecting their assets.

At first, John thought he should form a C Corporation so that he could protect he and his wife's assets while also reducing their taxes. After learning the he could be construed to be a Personal Service Corporation by the IRS because his product sales were less than 50% of his overall sales, John decided on an S Corporation for the business and a Limited Liability Company for his real estate. By separating his business into one entity and his rental properties into another, John and his wife accomplished a number of positive things:

1. They moved the rental properties out of their name reducing the possibility that some overzealous lawyer might come after them personally because on the county records they were showing a great deal of wealth.
2. They protected themselves personally from a potential lawsuit generated against one of the rental properties. Any lawsuit filed against the properties would stop at the LLC and would not put their other personal assets at risk.
3. If they did have a personal judgment declared against them, the properties would be protected through a charging order.
4. They have protected their real estate and other personal assets from any lawsuits against the business. Since the business was set up as an S corp. all of the income flows through to John and his wife personally. Therefore, the only assets in the company would be those needed to maintain the day to day business. In other words, John can move the profits out of the company, and protect them from litigation at the same time.
5. They saved money on taxes by taking all of their fringe benefits right off the top by having things like automobile expenses, health insurance, travel, business entertainment, etc. paid for as legitimate business expenses by the new legal "entities." They also increased their options on certain retirement plans.
6. They saved an additional $6120 on self employment taxes by splitting the $80,000 in half and taking $40,000 as salary and $40,000 in distributions. The 15.3% self-employment tax for Social Security and Medicare (FICA) is "not" applicable on distributions.

In addition to all of the protection they received, the total tax savings for John and his wife should be well over $8,000 per year. The total "one time" cost to set up both entities was approximately $1500!

Related Articles
  Negligent Hiring
  The Value of EPL Insurance to Protect Your Business Against Employment Lawsuits
  Protect Your Business Assets - Know the Rules
  The “References Checks Are A Waste Of Time” Myth:
  Employee Manuals: A Proven Way to Protect Your Business
  Boomer Business Start-Up Strategy #7
  The Power of Connecting
  Financial Independence using The Internet
  Don\'t Be A Stella
  Profiles in Branding
  Lessons from a Root Canal
  Why Trademark?
  Disruption Breeds Opportunity
  When and How to Copyright Your Book
  What Role Should The Government Be Playing In Health Care?
  Using Trademarks and Patents Together = Double Protection for your Business
  Don't Rely On Government Health Care
  Taxes in Perspective
  Recession's Over? Bah, Humbug
  Am I a Leader?

Article Tags: asset protection, business credit, careful consideration, ccorp, lawsuits, litigious society, LLC, scorp, tax deductions, taxsavings



Related Forum Posts
Re: Hi there! I'm Shanuna Cortez - Welcome Shanuna to the club. We will like you to post and let us know more about British Entrepreneurship Society
Upcoming inventors exhibition - Hi Forum, Just wanted to get an idea if any one has been to the previous British Invention Society exhibition. Also are there any inventors exhibitions in the near future. Lets a arrange a calender of events which Inventors may find useful to attend around the world.
Re: Business 2012 in London - [quote="bjsteele":wu04qnmy]I don't know Richard Branson. Could you introduce him simply? What is he speaking about?[/quote:wu04qnmy] You were asking who Richard Branson is, well after a few false starts his first successful business venture was producing a magazine called ‘student’ which he launched in 1968. He then started selling records by mail order in 1970 before opening his own record shop in Oxford Street in 1971. He then opened the Virgin recording studio in 1972 followed by his own Virgin Records label in 1973 and the rest is history. He is the founder and inspiration for all things Virgin now such as Virgin Telecoms, Virgin Atlantic Airline, Virgin Records, Virgin Racing, Virgin Bank and Building Society amongst many others here and abroad and I would like to get to London to meet him and listen to what he has to say. Sir Richard Branson as he is now has been drafted in as one of several ambassadors to bolster Britain's image abroad. The initiative will be launched across 17 key cities, including LA, Tokyo, Beijing and Sydney, with events including a show in Rio during which images of Britain will be beamed onto Sugarloaf Mountain. regards, Mal.
Re: Sales Letters: Do they work? - Sales letters are a unique and very beneficial element to almost any businesses marketing and sales letters, if done professionally and ethically. According to Rudyard Kipling, 'words are the most powerful drug we humans can deliver' the reason these letters and sites work, and they do, trust me, is people they are targeted to a very specific type of person/demographic. The more you understand your market, the better you can write your sales letters and collateral material. Every form of communication essentially uses this format, identify the pain propose a solution offer proof - through testimonials outline the benefits make an offer they cant refuse etc etc if your radar flags when you read some one else's letter, that only speaks to your own integrity and how you want to be seen. In fact, some of the best sales letters every written have been for World Wildlife Fund, Foster Parents Plan, Canadian Cancer Society etc. The difference is that now mainstream businesses and especially information marketers are using these tactics. Personally the formula is used all the time in every successful campaign - you only need to decide what you are comfortable with. As far as one of the links Shri provided, I'm very familiar with his work and quite frankly wouldnt bother recommending it.... But to sum up - sales letters are an old and traditional way of motivating someone to buy - right now. dont knock it - if you aint tried it. But make sure you are 100% acting in integrity and within the comfort level of your audience. Jude
Napoleon on Project Management - Why do I include this in a list of books aimed at female entrepreneurs? Well...in the expectation that there are as many female history buffs as male ones, and in the belief that anyone interested in history will find this book fascinating, while those interested in project management will learn a thing or two. I think this was the first "gimmick" book - an author using a historical figure (usually a male, military figure, it must be admitted) to talk about modern day business management. I refuse to read any of the kind that advocates - even obliquely - the techniques of the Sopranos or the Mossad - but these military ones are pretty fun. Anyway: Only in the understanding of history, Napoleon might say, do we gain an understanding of strategy in the present. In the same spirit, Napoleon on Project Management offers the recipe for successfully managing your commitments using the strategies, tactics and priorities that propelled Napoleon himself to victory. [The book doesn't gloss over how Napolean eventually fell in defeat, of course, and there's lessons to be learned there as well. TOC Foreword by Douglas James Allan (Napoleanic Society of America) 1. The Rise to Power -The Skills to Succeed -A Compelling Vision -Diplomacy and Networking -Lessons from the Great Campaigns 2. Napoleon's 6 Winning Principles -Introduction -Exactitude -Speed -Flexibility -Simplicity -Character -Moral Force 3. The Downfall -What Went Wrong -Lessons from the Russian Invasion and Waterloo -The Four Critical Warning Signs -Napoleon's Legacy


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Ready for a Fresh Image?

Adjusting Your World

How Promotional Caps became a Fashion Trend

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.