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Does an LLC treated as an S corp. provide better asset protection than an S corp.

New York, NY |

For an independent inventor who's the owner and only shareholder to collect licensing royalties as pass-through dividends...

Attorney Answers 4


  1. Best answer

    An LLC is an excellent legal tool to isolate the risk generated by a business. It will not protect personal assets as for example your primary residence or a bank and brokerage accounts on your name. A plaintiff may always attempt to pierce the corporate veil by holding you personally responsible through theories as negligence or gross negligence.

    Depending on the value of your business, the revenue it generates and your total personal net worth you may consider putting the sole proprietorship of your LLC in a legal tool that is specifically designed for asset protection purposes: A Family Limited Partnership filed in a state with strong charging order rules.

    Also note that a legitimate asset protection structure should be tax neutral and not compromise ownership or control.

    You should schedule a consultation with an attorney that has proven expertise in the area of asset
    protection planning.

    Good luck!

    Douglass Lodmell is the nations #1 Asset Protection attorney and has clients in all 50 states, protecting over $4 Billion in client assets. Answers given by him in this forum do not establish an attorney-client relation. He advises to seek a specialized attorney in the area of your interest for legal representation.


  2. Not sure what asset protection you are interested in? Can you be more specific?

    If this answer is helpful, then please mark the helpful button. If this is the best answer, then please indicate it. Thanks. For further information you should see an attorney and discuss the matter completely. If you are in the New York City area, then you can reach me during normal business hours at 718 329 9500 or www.mynewyorkcitylawyer.com.


  3. Both the LLC and the Corporation can provide 'Layer 1' of the 3 Layers of Asset Protection. The fact that the 'S' Election has been taken by either one of them has no bearing on the degree of protection. It is merely a tax election for purposes of certain deductions 'flowing through' the business entity. Work with an Asset Protection attorney to make sure the Company is owned by the second layer and make sure you document the Corp or LLC in such a fashion that it is not likely to be 'pierced'. Good Luck to you !!


  4. An LLC and Corporation are on same level as far as creditor protection is concerned. An s-corp is just a tax election and therefore s-corp/c-corp all same as far as this issue goes.

    With that being said, if you want even better protection then you form your own LLC holding company to own your IP rights....and then you license the rights to use the IP (pursuant to a written license agreement) to the operating company (also can be an LLC or corp) that plans on exploiting the technology in furtherance of an operating business. If operating business gets sued and has major claim you don't lose the IP on liquidation to creditors because the holding company (who is the sole owner of the IP) is untouched...Holding Co LLC simply terminates the license agreement (pursuant to it right to do so in event of insolvency or bankruptcy) when Operating Company LLC goes belly-up.....the creditors do not get the valuable IP rights if structured properly and you run the 2 businesses as discrete and distinct entities from each other and from you as personally (i.e. proper books and records of account and no comingling of assets).

    My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained.

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