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Is there any way to shield business and personal assets from potential claims of liability in the future?

City Of Industry, CA |

We are a CA based s-corp and in the business of selling auto parts online. The items are imported and therefore, according to our insurance company, we are the "manufacturer." Through the course of business, we've encountered quite a lot of bizarre issues including customer buying/installing parts for incorrect vehicle causing damage.

Often times I see cases where the officers of corporations are named as defendants indicating that the personal as well as business assets are at risk. Is there a way to reposition the asset (cash & current asset such as inventory) so that it is out of reach of potentially frivolous litigation?

Attorney Answers 6

  1. Best answer

    I agree with my colleagues in that compliant bookkeeping, no comingling of personal and business assets, an extensive insurance coverage are all pillars of a sound asset protection strategy.

    A lot depends on the net worth you seek to protect (the value of your business, the revenue it generate + your personal net worth including primary residence, bank and brokerage accounts and other investments. If the amount at stake is big enough, an attorney that works on contingency bases may attempt to pierce the corporate veil of your business entity by holding you personally responsible using theories as negligence or gross negligence.

    You may consider combining your existing business entity with a legal tool that was specially designed for asset protection purposes such as a Family Limited Partnership filed in a state with strong charging order rules such as AZ.

    Also keep in mind that when starting up a business, the risk of (frivolous) lawsuits may not only come from clients or providers, but also from (ex) employees.

    I advise you schedule a consultation with an attorney that has specific expertise in the area of asset protection planning. An experienced CPA and insurance broker should also make part of your team. 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. if you are following the proper corporate formalities such as holding regular board meeting, keeping accounts separate, etc, then your personal assets should be shielded will your business liabilities.

  3. I concur with the answer Attorney Parikh has provided.

    Mr. Crosner is licensed to practice law in California and has been practicing law in California since 1978. The response herein is general legal and business analysis.. It is not intended nor construed to be "legal advice" but rather it is analysis, and different lawyers may analyze this matter differently, especially if there are additional facts not reflected in the question. Oftentimes the question does not include significant and important facts and timelines that, if known, could significantly change the reply and make it unsuitable. I am not your attorney until retained by a written retainer agreement signed by both of us. See also terms and conditions item 9, incorporated as if it was reprinted here.

  4. In addition to following the proper corporate formalities and not commingling assets, etc. You should buy insurance for your business. Your insurer will be obligated to defend and indemnify you for most types of claims. You should immediately contact an insurance broker for assistance in obtaining the right coverage for your business. It is money well spent.

  5. In addition to proper corporate compliance and proper and adequate business insurance, you should consult with an estate planning attorney to set up a living trust for you. If you have one to make sure is properly funded and updated. Also you should have a business attorney review your corp documents and have a good shareholders agreement in place.

    Good luck.

    In addition to AVVO's disclaimer, please note that by this answer no attorney client relationship is intended mor entered into and unless there is a signed retainer agreement in place, neither me nor anyone in our office has intended to solicit clients nor reprints them. The answers are general in nature and without weighing specifics of particular query. No answer should be relied on in whole or in part, directly or otherwise to act or not to act in pursue of any of your potential claims in law or equity. You should consult with and obtain advise or representation of an attorney to protect your rights regarding your case or matter.

  6. IN addition to what my colleagues have said, understand that just because a plaintiff names officers, doesn't mean the business assets are liable or even "at risk" as you believe; this is what the defense and insurance is for. Naming officers without good cause can subject plaintiff to legal fees for getting those officers dismissed out of the action which is the first thing a defense lawyer will do. Officers are only liable when there can be proved some kind of fraud on the part of officers, or as my colleagues have said if there is co-mingling of the personal and corporate assets. Having a separate bank account is clearly needed; your minutes are secondarily important but still needed, so if they are not up to date (an extremely simple process), do so now. Any business attorney can do that just shop around for the best price. Many on this AVVO forum can do this.

    The foregoing is for informational purposes only and may not be relied on as attorney-client advice.

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