Isolate Assets – Will a limited partnership (LP) or LLC protect my assets?
By: Barry E. Haimo, Esq.
January 3, 2014
Simple Answer:
The simple answer is yes. In Florida, a limited partnership (LLP) or a multi-member limited liability company (LLC) will protect your assets. However, it’s important to understand how they protect your assets. Primarily, these entities insulate and isolate your assets from each other and yourself, as the owner. The result is encapsulating the liability exposure to the entity itself rather than allowing it to spread to you and your other assets, especially unrelated assets. It’s another tool in your asset protection toolbox.
Explanation:
There are several different types of business entities, with each having its own unique advantages and disadvantages. Business entities are designed in large part to limit the exposure to liability that owners, investors, and/or shareholders may face. They all do a good job of protecting the owners from creditors of the business, or “inside creditors”. However, they are very different with respect to how they protect owners’ interests in the entities from their personal creditors, or “outside creditors.”
You are considerably more vulnerable when your assets are pooled together. However, if you separate them legally, or insulate and isolate them from each other and yourself, it provides layers of protection that will go a long way. Conversely, you are less protected from your personal creditors with a corporation electing to be treated as a small business corporation (S-corp) than you think. The same applies with respect to a s-corporation and a single-member limited liability company (LLC), which of which provides a little protection. General partnerships and sole proprietorships offer the least protection; mainly, none. In other words, you are exposing yourself to unnecessary liability and you are at risk of having your business being taken away from you if you are not incorporated correctly. We will defer to another day how to properly maintain compliance of your entity to ensure you’re receiving maximum protection under the law. The bottom line here is that multi-member LLCs and limited partnerships offer the maximum amount of protection of domestic entities. You can always employ irrevocable trust sand offshore entities and trusts if you want to take your asset protection planning to a deeper level. The expense and hassle of doing so may not be worth it so it largely depends on your facts and circumstances.
Limited Partnerships:
Limited partnerships are excellent vehicles for business, tax, estate planning and asset protection planning. Like multi-member limited liability companies, or LLCs, they protect from business creditors, or “inside creditors”, and personal creditors, or “outside creditors.” Limited partnerships, therefore, provide an excellent opportunity to insulate and isolate assets from each other and yourself, as the owner. How they work to do so and how they operate in general is beyond the scope of this post.
Author:
Barry E. Haimo, Esq.
Haimo Law
Strategic Planning With Purpose
Email: barry@haimolaw.com
LinkedIn: http://www.linkedin.com/in/bhaimo
Google+: https://plus.google.com/u/0/+BarryEHaimoLaw/posts
YouTube: http://www.youtube.com/user/haimolawtv
YOU ARE NOT OUR CLIENT UNLESS WE EXECUTE A WRITTEN AGREEMENT TO THAT EFFECT. MOREOVER, THE INFORMATION CONTAINED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. EACH SITUATION IS HIGHLY FACT SPECIFIC AND EXCEPTIONS OFTEN EXIST TO GENERAL RULES. DO NOT RELY ON THIS INFORMATION, AS A CONSULTATION TO UNDERSTAND THE FACTS AND THE CLIENT’S NEEDS AND GOALS IS NECESSARY. ULTIMATELY WE MUST BE RETAINED TO PROVIDE LEGAL ADVICE AND REPRESENTATION. THIS INFORMATION IS PROVIDED AS A COURTESY AND, ACCORDINGLY, DOES NOT CONSTITUTE LEGAL ADVICE.
