| Small Business Corporations. Many small businesses | | | | What to do. To protect your shares in your |
| are run through corporations. You have heard the radio | | | | corporation, here are some of the techniques. Each of |
| ads that you must protect your home and banking | | | | them has advantages and disadvantages: |
| accounts from business liabilities by running your | | | | 1. Buy Sell. Have a buy sell agreement that mandates |
| business though a corporation. | | | | the sale of your stock in the event it is taken as a |
| Stock Not Protected. But what protects your shares in | | | | result of a court judgment. |
| your corporation that owns your business? In contrast | | | | 2. Use an LLC. Consider setting up your business as a |
| to a Virginia or Delaware LLC, a court may order the | | | | Limited Liability Company (LLC) in a state where LLC |
| seizure and sale of your corporate shares to pay | | | | interests are protected. Consider making a corporate |
| judgments against you. | | | | tax election for the LLC. More on this later. |
| Peter Plumber. Peter Plumber has a successful | | | | 3. Convert. If you have a corporation, review with your |
| plumbing company (Peter Plumber, Inc.) with 20 | | | | advisors the feasibility of converting to an LLC. Be |
| employees, ten trucks and $3,000,000 a year in sales. | | | | aware that the IRS considers such conversions a sale |
| One night he has a terrible auto accident while he was | | | | and do not do this if you have to pay a lot of taxes. |
| driving home from work. He ends up losing the lawsuit | | | | 4. Segregate Assets. Have all of the assets that you |
| over the accident and a judgment for $5,000,000 is | | | | use in the business owned by separate LLCs and rent |
| entered against him personally. His auto insurance only | | | | those assets from these LLCs. For example, Peter |
| pays $500,000 of the judgment. The trial lawyer for | | | | Plumbing, Inc. does not own the vehicles or its |
| the accident victim comes after Peter for the | | | | warehouse. The vehicles are owned by a separate |
| remaining $4,500,000. The trial lawyer obtains a court | | | | LLC as is the warehouse. |
| order for the sale of all the stock Peter owns in Peter | | | | 5. Have LLCs own your Shares. If you have a C |
| Plumber, Inc., in addition to losing most of his assets. | | | | Corporation that pays corporate taxes, have your |
| Just Another Asset. Whether in Microsoft® or | | | | shares owned by an LLC that is protected. If you |
| shares in Peter Plumber, Inc., corporate stock is treated | | | | have an S Corporation that pays no corporate taxes, |
| as an asset just like a bank account or real estate and | | | | there is a special type of LLC to use. More on this |
| can be sold on the courthouse steps. In my | | | | later. |
| experience, most business owners do not know this. | | | | |