The Adjuvancy, LLC
Post Office Box 25766
Alexandria, Virginia 22313
Incorporation can offer your business many advantages! In addition to liability protection; incorporation can also mean attractive tax advantages, prestige, the road to better financing, and the ability to raise cash through the sale of stock. Corporations can also own real estate, automobiles, yachts, or aircraft for further asset and liability protection.
Generally, you should seek to insulate business risks from personal risks and vice versa. To achieve this objective, your choice of business entity becomes critical. A corporation works well to insulate shareholders (if you own the company, you are the shareholder) from claims made against the corporation: A physicianís house would normally be shielded from claims made against his Professional Corporation (P.C.). However, if a landscaper trips and falls over an infantís toy on your premises, the physicianís shares in the P.C. could be reached by a judgment creditor, and its assets liquidated following execution on the shares to satisfy the judgment.
The limited liability company (L.L.C.) can actually improve on the asset protection features of the corporation. Like claims made against a corporation, claims made against an L.L.C. do not normally "migrate" to other assets of the member (this is the term used for the owners of an L.L.C.). A person cannot normally be sued for debts incurred by the L.L.C.. However, unlike the situation with corporate shares, the judgment creditor cannot seize the debtorís membership interest. At most, the creditor could obtain a "charging order," which is in the nature of a lien. A charging order would entitle the judgment creditor, as assignee, to receive only those distributions actually made by the L.L.C.. If the L.L.C. operating agreement authorized the manager to withhold distributions, the judgment creditor would receive nothing.
In addition, the percentage ownership in an L.L.C. does NOT directly translate to the percentage of profits or losses attributable to a given member. It is possible for there to be two owners with 50% equity in the L.L.C., yet the percentage of losses and/or profits may be 70/30.
Corporations have a lower federal tax rate at all levels of income compared with individuals. For example, a corporation only pays 15% tax on the first $ 50,000 profit. Compare that to the rate you would pay if you were not incorporated. .
Owners Risk it All by Not Incorporating
It doesn't take a catastrophic lawsuit to wipe out everything you own.
Consider what would happen if:
Could you pay your own bills? Satisfy your debts? Or, would you be forced into personal bankruptcy? Remember, future earnings or inheritance can be attached, besides your existing assets (home, cars, bank accounts, retirement funds). That's why most businesses can benefit by incorporating!
Copyright © 2016 The Adjuvancy, LLC