Starting your Business By Incorporating in Nevada

When you are starting a business there are two important questions to ask:

1. Should I incorporate or start out as a sole proprietor?
2. If I do incorporate which state should I use?

The answer to the first question is painfully obvious – as in it will be painful if you ignore the obvious.

There is no asset protection with a sole proprietorship. One claim against your
business and all your personal assets (i.e. home and bank accounts) are at risk. The fact
that you may not have a lot of assets right now doesn’t really help you. A judgment can
be renewed for years to come. The day you do acquire assets they can be reached by the
judgment creditor. Another downside of the sole proprietorship is that they are audited by
the IRS as a five times greater rate than other forms of doing business.

A corporation or an LLC (collectively an “entity”) will protect your personal
assets and reduce your audit risk. If your business gets sued, the assets inside the entity
can be reached (i.e. computers and equipment). Importantly, the assets outside the entity,
your personal assets, are not exposed to the claim. Your personal assets are protected.

So you will always want to form an entity for protection. Please do not fall victim
to the advisor who says you aren’t making enough money to incorporate. The issue is not
your level of reward but your risk, which begins the day you start your business.

The next question to answer is: Which state for formation will you choose?

Please know that you can form an entity in whatever state appeals to you. For
example, if you are doing business in California you can incorporate in California. As
many of you know, California’s laws are weak on asset protection. Thankfully, you have
the choice of incorporating in Nevada for the superior laws and then qualifying to do
business in California. (Qualifying is the process of getting permission for a Nevada
entity to do business in California – or any other state. It is always granted.) This means
you will pay the annual fees in both California and Nevada. But by paying the additional
Nevada fee you are buying an excellent form of insurance – superior asset protection.

Many business owners will choose an S corporation for their business startup. The
S corporation offers a lot of advantages – flow through taxation, and, as of this writing,
the ability to minimize payroll taxes. The only problem with the corporation (be it a flow
through S corporation or a double tax C corporation) is that it doesn’t have the asset
protecting benefit of the charging order as is found in an LLC.

Until now.

Nevada is the only state in the Union to extend charging order protection to
corporation shares. The charging order means that instead of a shareholder’s creditor
being able to force a sale of the corporation’s assets they must rather wait for the
distributions as in an LLC. The charging order is a huge deterrent to frivolous litigation.
This asset protection benefit applies to Nevada corporations with between 2 and 75
shareholders. And it is the reason many business owners are starting out by incorporating
in Nevada.

Thus, for many, the two questions we posed at the start can be answered in one
line: Yes, I will incorporate in Nevada.

Garrett Sutton is an attorney, Rich Dad’s Advisor and the best selling author of
numerous books including “Own Your Own Corporation” and “ How to Use Limited
Liability Companies and Limited Partnerships.” Garrett has over thirty years’ experience
in helping business owners and investors protect their assets and limit their liability.
Sutton Law Center accepts new clients and more information may be found at
www.sutlaw.com or by calling 1-800-600-1760.

Florida Loses Asset Protection

The Supreme Court of Florida took away a key asset protection benefit in deciding Olmstead v. Federal Trade Commission (SC 01-109, Fla. June 24, 2010). Before the ruling a charging order was the exclusive remedy, whereby the judgment creditor (the person who won a lawsuit) could only receive distributions from the LLC. Now, a judgment creditor may directly seize the ownership interest of a member in a single member LLC.

The Olmstead decision allows Florida courts to order a judgment debtor to surrender all right, title and interest in the debtor’s single member Florida LLC to satisfy a judgment. Prior to the ruling many had believed that Florida law provided that the charging order was the exclusive creditor remedy.

            Not anymore.

Multi member Florida LLC owners should be very concerned by this decision. Writing a dissent in the 3-2 decision Justice Lewis warned that the Olmstead ruling means that the charging order is a non exclusive remedy for all LLCs, whether single or multi member.

Justice Lewis wrote: “The majority opinion now eliminates the charging order remedy for multi member LLCs under its theory of “nonexclusivity” which is a disaster for those entities.”

If you are using a Florida LLC to protect your assets you may want to reconsider your state of formation. Wyoming allows LLCs to easily reform themselves into Wyoming. The continuance process allows a Florida LLC to reorganize in Wyoming and keep the same formation date, EIN number and credit history. The advantage is that you now have a Wyoming LLC, which expressly recognizes the charging order as the exclusive remedy. Our office charges $750 plus filing fees to continue LLCs to the better asset protection state of Wyoming. Please call 1-800-600-1760 for more information.

And remember, asset protection is an ever changing area of the law. The Olmstead case was decided in a way that allowed another government agency – The Federal Trade Commission – to collect. Of course, the case now applies to the benefit of all creditors. In a dynamic field it is important to stay current on the latest cases, and move accordingly.

Asset Protection for Gold, Silver and Precious Metals

Gold, silver and other precious metals require asset protection.  We live in a litigious and uncertain world, which is most likely one of the reasons you invested in precious metals in the first place.  It is important to know that if gold, silver, platinum and other metals are held in your individual name, they too can be lost in a lawsuit.

By using an LLC to hold title to your precious metals you have much greater protection.  With precious metal assets in an LLC, if you are sued individually a judgment creditor (the person who won the lawsuit) has to fight through the LLC to get at the assets.  This is a difficult process.

By using a Wyoming LLC, all the judgment creditor can get (after hiring a Wyoming attorney to go to court in Wyoming) is a charging order.  The charging order is a court order directing the judgment creditor to receive any distributions made from the LLC.   This means they can't force you to sell the metals and give the money to them.  All it allows is for monies - when distributed - to go to the judgment creditor.  In the case of precious metals what distributions will be made?  You typically would not be distributing your gold, silver or platinum.  Instead, you are holding them in the LLC for protection.  You are free to hold them in the LLC until the judgment creditor goes away or settles for pennies on the dollar.  More importantly, by holding valuable precious metals in an LLC the claim may never be brought in the first place.  LLCs offer gold asset protection, silver asset protection and precious metals asset protection.
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