Company Location - A General Philosophy
Limited Liability Companies (LLC's) may protect assets from the claims of outside creditors, but this protection depends on the law of the state in which the LLC was organized or the law of the state of business, depending on where the obligation was created. This protection is not fool proof, hence the word “limited.”
There is a healthy, justified debate over the states' statutes that provide the best protection. In general, you should note that it is beneficial, from a protection point of view, to compartmentalize your assets. This is why many people choose LLC's as shells, if you will, for their assets. In many ways liability is like water, it seeks its own level; in the case of liability, it seeks the weak vulnerable assets and flows in that direction.
States also vary in cost and taxation. We feel that first-rate protection of your business trumps saving the few dollars of extra taxation that you may be required to pay. For this purpose, we discuss protection. What are the corporate laws of the state regarding the rights of creditors?
If you incorporate in one state and end up conducting most of your business in a different state, you will have to qualify to do business in that other state, which will involve more fees and costs, more filing requirements, and more paperwork. If your business actually conducts business in more than one state, or if it is a large, publicly held corporation, it can be worth the additional cost and time to incorporate in one state but operate in another state or states. A corporation doing business in a state other than its state of incorporation is considered a foreign corporation.
The greatest disadvantage is that a corporation may have to defend itself in another state, but not always. There may be clauses added to contracts that specifically outline the remedy process, and you may designate where you choose to remedy any claims providing that the clause is legal.
Over sixty percent of the Fortune 500 Companies and half of publicly traded companies have incorporated in Delaware. The United States Chamber of Commerce Institute for Legal Reform has ranked Delaware as the top state to incorporate in for six consecutive years (Harris Poll State Liability Ranking 2006).
The Delaware Court of Chancery hears mostly cases concerning equity and uses judges instead of juries. Delaware law does not require the names of the board members to be public. Only during legal proceedings or court matters must this information be revealed.
Most states allow a creditor of an LLC member to foreclose on the debtor's interest. This should be compared to the states of Nevada and Alaska, which provide that a creditor's only remedy is a charging order against the LLC interest.
However, it should be noted that, according to an attorney from a southern state, benefits from state laws making a charging order the exclusive remedy may be overstated. Even if a creditor can foreclose on a debtor's LLC interest, the creditor is unlikely to do so because a purchaser at a foreclosure sale obtains no management or voting rights. In addition, a purchaser at a foreclosure sale is more likely than the holder of the charging order to suffer adverse income tax consequences.
A west coast attorney agrees that a creditor may be worse off as the assignee or owner of an LLC interest than as the mere holder of a charging order. While an attorney in the southwest feels that availability of the foreclosure remedy should not be the only factor considered in selecting LLC jurisdiction.
We mentioned Delaware due to the popularity and we mention Nevada due to the changing laws. Nevada was at one time staunch protection for the corporate veil. However, since July 1, 2007 Nevada has adopted new legislation that requires reporting to the Secretary of State, thus outlawing Bearer Shares.
You can incorporate yourself by applying to the Secretary of State. If you choose to do this yourself, you should have great knowledge of business law behind your decision including the statures, the taxation and reporting requirements.
If you feel that you need help with your decision and want to set up your LLC in the manner that best protects your assets, click on the link and contact us for a consultation.
OFFSHORE ASSET PROTECTION
- Asset Protection Offshore Liechtenstein
- Asset Protection Tax Summaries Ireland
- Taxation Foreign Corporations
- Asset Protection Tax Summaries Honduras
- Intentionally Defective Grantor Trust
- Asset Protection Caribbean Tax Havens
- Offshore Financial Centers Ireland
- Asset Protection Nsa Spying
- Asset Protection Using Offshore Trusts
- Tax Avoidance Vehicles
- Boats Asset Protection
- Asset Protection Tax Summaries Mexico
- Family Limited Partnerships Tax
- IRS Abusive Trusts
- Panama Region
- Asset Protection Panama Foundations
- Asset Protection Offshore Definition
- ASSET PROTECTION LOCATION OF YOUR COMPANY
- Asset Protection Lawsuit Prevention
- Asset Protection Renunciation
- Private Annuity Ruling Irs
- Assetprotection Trusts
- Asset Protection Tax Summaries Ecuador
- Panama Canal Zone
- Asset Protection Tax Summaries Panama1
- Going Offshore
- Asset Protection Taxing Foreign Stock
- Asset Protection Guernsey Taxes
- Asset Protection Police
- Secret Bank Accounts
- Offshore And Alternative Investments
- Asset Protection Taxing Expats
- Irrevocable Life Insurance Trust
- Asset Protection Tax Summaries Nicaragua
- Asset Protection Laundering
- Asset Protection Hong Kong
- Offshore Asset Protection Planning
- Offshore Cayman Islands
- Asset Protection Second Passport
- Poetic Injustice In The Pearl River Delta
- Asset Protection Expatriation
- Asset Protection Scam Trusts
- Dynasty Trust The Basics
- Asset Protection Flat Tax For Puerto Rico
- Panama Comfort Zone
- Asset Protection Tax Summaries Italy
- Bahamas Information
- Asset Protection Faq
- Offhshore Banking Privacy
- Asset Protection Privacy
- Offshore Asset Protection
- Offshore Pensions And Taxes
- Asset Protection Panama
- Asset Protection Tax Summaries France
- Asset Protection Identity Theft
- Probate And Revocable Trusts
- Asset Protection Guernsey
- Nevis Offshore Financial Center
- Isle Of Man No Tax Zone
- TrustMakers Forms Center
- TrustMakers Site Map
Learn more about protecting your assets with these articles:
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