State by State Resources
Business Planning
Corporations Used in Asset Protection
Nevada Corporations
Secrecy statutes, bearer shares, and Nevada's non-cooperation with the
IRS has made this entity a marketer's dream. But is there any real
substance behind the hoopla?
Employee Stock Ownership Plans (ESOPs)
Employee Stock Ownership Plans (ESOPs) are qualified retirement plans
that corporate employers may establish to provide benefits in the form
of ownership in the corporation for which the employee works and any
of its related companies.
Reverse Alter-Ego
Discusses the developing theory that allows a creditor to invade the
assets of a corporation based on the debts of its owner.
Alter Ego
Discussion of the alter ego argument as utilized by creditors to break
through the liability containment of business entities, including a
list of the major opinions involving alter ego arguments in the
debtor-creditor context.
Charging Order Protected Entities
Family Limited Partnerships
Also known as
FLPs, these are the hottest planning tool going, and we offer
extensive treatment of this structure. Many of the same rules apply to
the Limited Liability Company (LLC) as well.
Single Member LLCs
Considers the special situation of LLCs with only one member. In a
nutshell, no charging order protection but otherwise treat
similarly to a sole shareholder corporation.
Introduction to Charging Order Protection
An overview of charging order protection, and its use in asset
protection planning.
Charging Order Protection Cases
A state-by-state compendium of opinions relating to the issuance of
charging orders and liquidation of partnership or membership
interests.
Terms
Charging Order
An order issued by a court to a judgment creditor which essentially
compels an entity of which the debtor is a partner or member to direct
to the creditor until the judgment is satisfied any distributions that
would otherwise have been made to the debtor.
Charging Order Protected Entities (COPEs)
Entities that restrict the remedies of a creditor of an owner to a
“charging order” that entitles the creditor to distributions made in
respect of that ownership interest, but do not allow—at least
initially—the creditor to actually take the ownership interest. From
an asset protection standpoint, the advantage is obvious: The creditor
has no immediate means of getting at the assets in the entity even
though the creditor holds a judgment against one of the owners.
Charging Order Protection
This prevents a creditor of an owner of particular types of business
interests from reaching the assets of the business and from gaining
voting control over the business interest. Rather, the creditor can
only get a court order charging the debtor’s interest with the debt,
meaning that the creditor will receive any distributions made in
respect of the debtor’s interest. If the person in charge of making
such distributions never makes one, the creditor may be out of luck.
Originally, this protection arose to protect nondebtor partners from
the debts of other partners of a business enterprise. Typically, the
availability of charging order protection is limited to partnerships
and limited liability companies, which is why Family Limited
Partnerships are a popular asset protection tool.
Check-the-Box Regulations
Regulations promulgated by the Secretary of the Treasury in 1996 which
allow an LLC simply to choose whether to be taxed as a partnership or
a corporation.
Combo Platter
A widely-marketed cookie-cutter asset protection structure involving
an FLP with the limited partnership interests owned by a FAPT. The
strategy is that if a creditor attacks the FLP, the FLP is liquidated
into the FAPT and all assets moved offshore.
Disregarded Entity
An entity for which the tax consequences are attributed to its owner
as if it did not exist. Note that this does not mean that the entity
is “tax exempt”, which is a common and false claim made by tax scam
artists.
Extreme LLC
See Xtreme LLC, below.
Family Limited Partnership (FLP)
A limited partnership which holds the family’s business or
investments, with the idea that the parents will gift interests in the
partnership to their children at a discount, thus potentially saving
federal gift and estate taxes. The term is planner’s slang, since
there is no entity called a “family limited partnership” that is
referenced by any statute, nor is any such entity referenced in the
Internal Revenue Code.
General Partnership (GP)
A partnership that consist only of general partners, all of who are
jointly liable for the liabilities of the partnership, and all of whom
have management rights to the partnership. In asset protection
planning, general partnerships are usually to be avoided.
Limited Liability Company (LLC)
A hybrid type of legal entity that combines certain traits of
corporations with certain other traits of partnerships and other
noncorporate legal entities. LLCs allow their owners (called members)
to have the best of all worlds: pass-through tax treatment like a
partnership, limited liability like a corporation, unheralded
flexibility in ownership and management structure, and charging order
protection.
Limited Partnership (LP)
A partnership that consist of general partners who are jointly liable
for the liabilities of the partnership and who have management rights
to the partnership, and limited partners whose liability is limited to
their contributions to the partnership and who have no management
rights, i.e., general partners are true partners and limited partners
are mere passive investors.
Manager-Managed LLC (MemLLC)
An LLC that provides for one or more designated managers to have
management rights, and with the members having no management rights.
With a Member Managed LLC, the members are in a role very similar to
limited partners.
Member-Managed LLC (MgrLLC)
An LLC that allows the members to have management rights, very similar
in operation to a general partnership, but with some degree of limited
liability for the members.
Nevis LLC
See Offshore Limited Liability Company, below.
Offshore Limited Liability Company (OLLC)
A limited liability company formed pursuant to the laws of a foreign
debtor haven jurisdiction, such as the Nevis LLC.
Partnership
A partnership is an association of two or more persons carrying on a
business venture as co-owners for profit. Partnerships come in two
basic varieties: general and limited.
Series LLC (a/k/a “Cell LLC”)
A form of LLC allowed by the statutes of only a few jurisdictions
(most popularly Delaware) that allow membership interests to be
divided into categories or “cells” with liability for particular
actions of the LLC theoretically limited to the capital contributed to
the particular series in which the operations of the LLC occurred.
Single-Member LLC (SMLLC)
An LLC with but one member, who is typically also the manager, formed
in a jurisdiction that allows a single member. Because they are
relatively untested, the liability protections of SMLLCs are mostly
theoretical, but should be similar to that of a sole-shareholder
corporation.
U.K. Limited Liability Partnership (UKLLP)
A limited liability partnership formed under the United Kingdom’s
Limited Liability Partnership Act of 2000.
U.K. Limited Partnership (UKLP)
A limited partnership formed under the United Kingdom’s Partnership
Act of 1907.
Xtreme LLC
A very complex arrangement involving a Series LLC and complicated
interrelated and diverse transactions utilizing a variety of
irrevocable trusts.
Asset Protection Corporation Terms
Companies Limited by Guarantee
A company that has not been capitalized by cash, but rather by the
promises of the shareholders to provide a specified amount of cash if
required by the company to satisfy liabilities. A similar example is
the traditional Lloyds of London syndicates were essentially companies
that were capitalized by the unlimited guarantees of their members
(the “Names”) to stand behind the syndicates’ underwritings.
Controlled Foreign Corporation (CFC)
In very general terms, the U.S. Internal Revenue Code term used to
describe a foreign corporation that is owned in substantial part or
controlled by U.S. persons. For example, an International Business
Company formed in the Cayman Islands and owned and controlled in
majority party by three U.S. shareholders would likely be treated as a
CFC. A CFC has very extensive reporting requirements, and the failure
to disclose the existence, operation or revenues of a CFC may be a
felony in some instances.
Corporate Shell (a/k/a Corporate Veil)
Slang for the liability limiting advantage of a corporation, which
limits the liability of shareholders to the equity they have
contributed.
Corporation
A fictitious legal entity authorized by statute, created by the filing
of Articles of Incorporation with the relevant jurisdiction, and
capitalized by issuing shares of stock. A corporation can provide
protection to the shareholders against the liabilities created by the
corporation in excess of the corporation’s capital.
Directors’ and Officers’ Liability (a/k/a
D&O Liability)
The direct, personal liability of directors’ and officers’ of
corporations for their acts that adversely affect the corporation (and
thus giving rise to a shareholders’ derivative action) and for the
corporation’s acts which adversely affect others (as in the case of
employment discrimination claims).
Golden Parachute
A defensive arrangement whereby if a hostile party attempts to seize
control of the corporation by changing the corporation’s officers, the
officers are given large severance benefits, thus increasing the costs
to the hostile party.
International Business Company
A corporation authorized by the statutes of a debtor haven which (with
the exception of banking, of course) can only conduct business with
persons or entities outside the debtor haven, and not with the locals.
In other words, it is a company incorporated in a debtor haven but
required to be used elsewhere.
Leasing Company
A company used to hire employees and lend those to the underlying
business, to reduce profits in a liability-producing company or to
shift employment liabilities away from a valuable business.
Management Company
A company formed primarily to act as a manager of another entity,
distance control of the other entity from the owners, and absorb
liabilities arising from the management function.
Nominees, Nominee Shareholders,
Nominee Directors, Nominee Officers
These are persons who act on behalf of the true shareholders,
directors, or officers of the company, and who typically have executed
an undated resignation which allows their replacement at any time.
Offshore Management Company
A company formed in a foreign debtor having jurisdiction primarily to
act as a manager of another entity, distance control of the other
entity from the owners, and absorb liabilities arising from the
management function.
Piercing the Corporate Veil
Where a court disregards the legal fiction of the corporation and
imposes liability against the shareholders.
Poison Pill
A defensive arrangement whereby if a hostile party attempts to seize
control of the corporation by accumulating stock, additional stock is
issued so that all shares are diluted, thus increasing the costs of
the hostile party’s acquisition.
Professional Corporation (PC)
A form of corporation that can have only certain licensed
professionals as shareholders, and which typically does not protect
the professional shareholder from lawsuits brought alleging their
professional negligence.
Registered Agent
An agent for the corporation who is domiciled in the state of
incorporation and is available to receive service-of-process on behalf
of the corporation.
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