Business Planning has become an important part of asset protection which has been fueled by the perception that jury awards and judicial decisions are arbitrary and irrational in both assessment of liability and magnitude of damage awards. Lawsuits are especially troublesome for small, closely held businesses which do not have sufficient resources to defend expensive commercial litigation or pay large judgments. Many people contemplating a new a business want to know what type of business entity provides the best protection from creditors. Established, financially successful businesses are also concerned about protecting assets from frivolous lawsuits.
A business owner can help protect company assets by encumbering these assets with perfected secured debt, such as a mortgage or a business line of credit. When a bank gives a company a standby line of credit, they will require a security interest on all business assets, including real estate, inventory, equipment and cash, to secure the company's repayment of any loan. The bank will file a mortgage or UCC-1 to perfect the priority of its secured interest in the pledged assets against subsequent judgment from creditors. Any subsequent judgment creditor would have to repay the bank the full outstanding balance of the bank's secured loan before the creditor could begin to attack business assets.
Alternatively, a business owner may be personally sued for actions and debts outside any particular business. For example, if a business owner were unable to pay a secured debt which they had personally guaranteed, the judgment creditor could obtain a personal judgment against the business owner based on the guarantee. Similarly, if a business owner entered into a new venture with a partner, and as a result of a dispute the partner sued successfully, the partner's judgment would jeopardize all of the personal assets of the business owner and their family.
The personal judgment would also expose any stock the business owner held in a corporation including stock in their own, closely held corporations. Although corporations shield business owners personally from liability incurred by their corporation, the owner's stock in his corporation is vulnerable to his personal judgment creditors. Historically, popular forms of small business entities are relatively weak in terms of asset protection. To satisfy a money judgment, a personal creditor could attack the business owners stock in any and all of the owner's corporate businesses. Once a creditor obtained the shares in a corporate business, the owner/debtor would lose all equity in that entity, and more importantly, the creditor would become a principal shareholder and could disrupt corporate operations.
A limited liability company is the preferred business entity for asset protection purposes. The LLC offers the same corporate shield as the traditional business corporation so that judgments entered against the LLC will not threaten the owner's personal assets. More importantly, the owner's equity, or membership interest, in a limited liability company is less vulnerable to personal judgments than is stock in a corporation. An LLC membership interest is not an exempt asset under Florida Statutes, but a creditor's ability to collect a judgment from the LLC is limited by Florida Statute: 608.433. Under that Florida statute, a creditor with a judgment against a business owner cannot seize the owner's LLC membership interests nor can they attack cash or any other assets owned by the LLC. The same statute gives the creditor the right to obtain a charging lien against the owner's LLC interest. This lien gives the creditor a right to any distributions of cash or property that the LLC distributes to the debtor member.
Estate Planning
Estate planning focuses primarily on individuals and families future needs concerning tax and wealth transfer planning. We advise clients in all matters pertaining to wealth protection, business succession planning, preparation of wills, revocable trust agreements and irrevocable trust agreements. Additionally, clients are counseled on the use of powers of attorney and advanced medical directives. We value the long term relationships we establish with our clients and we continue to assist them as their personal and financial circumstances change over time. The work of our law firm also includes planning and preparing documents for the management and transfer of an individual's estate during their lifetime, upon incapacitation, or upon death. This includes advice on the income, gift tax returns, generation-skipping and death tax considerations directed to achieve tax savings within the individual's planning requirements.
Lasman Law Firm, P.A. represents trust companies, financial institutions, high-net-worth individuals, corporate fiduciaries, non-profit entities, and owners of privately held businesses. Attorney Jeff Lasman is active in local, state and national estate planning and tax groups, both as a participant and as lecturer. Mr. Lasman monitors, researches and advises on the ever changing laws and the time sensitive issues that are involved in the estate planning process.
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