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

Asked 7 months ago - 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. Brad S Kane

    Pro

    Contributor Level 18

    8

    Lawyers agree

    Answered . 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.

  2. Sagar P. Parikh

    Contributor Level 19

    4

    Lawyers agree

    Answered . 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. Janet Spiro Martin

    Pro

    Contributor Level 13

    4

    Lawyers agree

    Answered . 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. Janet@janetmartinlaw.com

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

    Contributor Level 18

    3

    Lawyers agree

    Answered . 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... more
  5. Pardis Patrick Ashouri

    Contributor Level 17

    3

    Lawyers agree

    Answered . 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... more
  6. Douglass S Lodmell

    Pro

    Contributor Level 13

    2

    Lawyers agree

    1

    Best Answer
    chosen by asker

    Answered . 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... more

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