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Which Little Pig Are You?

By Rob Lambert - Email Editor

Date: Dec 14, 2006

Dear Subscriber:

Once upon a time, there were three little pigs. All three decided to build houses (businesses). Let’s analyze what they built and how the moral applies to us.

The first little pig was hurried and a little short on money. He did a little research. This is what he found and what he did.

Upon his research, he found he could take advantage of Nevada State Law since he lived in California. Nevada seemed to offer some additional benefits (no tax reporting and no reporting of officers). Little Pig #1 decided that if he appointed someone else as his “nominee,” he might be able to short cut his taxes and protect his privacy (just in case the Big Bad Wolf might come knocking). Therefore, he hired a big fancy attorney who worked out of a big fancy office as his resident agent and used the agent’s EIN number.

He listed the agent’s place of business as his corporate address in Nevada and conducted business in California. He presented a beautiful façade to everyone who saw his website and thought he had a great business going. He did not realize that he was doing business as a foreign corporation. The laws of the state that he was actually conducting the business from superseded the Nevada laws that seemed so safe. Little Pig #1 even heard that he could get someone (a reputable businessperson or lawyer) to file a lean against his house, and then no one else could ever seize his property.

Little Pig #1 built his house of straw. We shall see what happened to this pig a little later.

The second little pig did some research and found that half of all U.S. publicly traded companies and 58% of Fortune 500 Businesses (Delaware.com) choose Delaware because of a highly respected Court of Chancery. He incorporated in Delaware (even though he too lived in California) and went about his business figuring that if another pig from California were to sue him they would have to go to Delaware.

Little Pig #2 built his house with wood.

Little Pig #3 read a report with excerpts written by Paul Sarbanes (D-Md) from the Government Accountability Office (GAO). (You have heard of Sarbanes-Oxley, right?) The 2006 report quotes the following:

-The FBI reported that U.S. shell companies are being used to launder as much as $36B from the former Soviet Union (other specific countries also listed).

-Nevada-based corporations received more than 3,700 suspicious wire transfers totaling $81M over two years, but were unable to prosecute because the owners were unable to be identified.

-None of the 50 states routinely requires applicants who want to form a new corporation to disclose who will own the corporation (reviewed by Levin D-Mich and Coleman R-Minn).

-Law enforcement is hindered by the absence of company ownership information in all 50 states.

Little Pig #3 was truly stunned to see how sloppy the state laws seemed to be. He figured that he was smart enough and built his house from bricks.

We all know the end of the story; or do we?

We know that the Big Bad Wolf came along and blew down the house of straw. California law supersedes Nevada law, and the Nevada Corporation offered no benefit from taxes or privacy in the end.

Little Pig #2 though he had it made when he got into a lawsuit with another business in Texas. “That guy will never go to Delaware to sue me!” However, states must honor laws such as Full Faith and Credit, and Little Pig #2 missed the clause about the contract being under the jurisdiction in the state of Texas. Texas reached out its long arm to California and to the house of Little Pig #2; the Big Bad Wolf huffed, puffed, and blew the house down. The Wolf did have to huff and puff, but eventually he blew the house down.

We all know about the brick house! The house seemed very strong and built with off shore trusts, off shore bank accounts and a very stealthy plan designed to keep creditors and the IRS from discovering the accounts. Little Pig #3 thought he was doing fantastic. He thought the Big Bad Wolf could not blow the house down, until one day, a tragedy happened in the community. Some bad pigs from another country flew planes into some big buildings, a lot of damage occurred, people tragically died, and the government had to do something in the name of national security.

The Government enacted legislation commonly referred to as the Patriot Act which changed everything. All the accounts and property owned by Little Pig #3 were now a matter of record. The bank accounts now fell under the Banking Secrecy Act, and all of Little Pig # 3’s accounts were now disclosed to the IRS. Everything was changed, and the brick house did not seem so sturdy anymore. Little Pig # 3 quickly figured out that he might actually soon be living with the Big Bad Wolf if he didn’t disclose all of his unreported offshore accounts.

In reality, all three Little Pigs had flawed plans.

What they really needed was sound advice from a professional who could tailor and construct a personal Asset Protection Plan that could withstand their personal liabilities and be fully compliant with all State and Federal laws. Each Little Pig needed a plan which protected his assets and still let him tell the truth and sleep well. Each little pig had a different set of circumstances and fell under a different set of jurisdictions. The moral of the story is that there is no one Asset Protection Plan for everyone, and the do—it—yourselfers are going to end up like one of the little pigs.

Please, get your advice from a real pro, check references, involve your personal attorney and CPA with all Asset Protection planning. Do your homework, play straight and you will be both protected and sleep well at night. So, plan accordingly and sleep tight!

Have a healthy and protected week.

Rob Lambert

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