Is this too expensive? - Posted by Brian_wa

Real Estate Investing
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Posted by Rich-CA on April 21, 2007 at 12:57:49:

I think its too expensive. The main assets an LLC can protect from a lawsuit are those NOT in the LLC (such as your primary residence). The best defense is a large liability insurance policy because the insurance company will work hard at not having to pay. No amount of verbiage will stop a judge from awarding the assets of an LLC if you lose.

I should also note that if you are sued personally, the LLC, being one of YOUR assets, is not safe from being used as payment should you personally lose the lawsuit.

Most states you can form an LLC on the web. In Colorado, its $25 if formed on the web. The real cost would be enough liability insurance to make sure if the other side wins, its not for lack of trying.

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Is this too expensive? - Posted by Brian_wa

Posted by Brian_wa on April 21, 2007 at 12:09:01:

I spoke with an attorney regarding forming an LLC to protect my assets. I already have an S-corp but he also suggested that I go ahead and fortify both entities to ensure my protection should someone decides to sue me.

Well, he has this 80-page article of formation or whatever it is that basically makes it virtually impossible for anyone to pierce the veils (or so he claimed). He’s charging me about 3k to form the LLC and modify the current S-Corp with this iron-clad doc. I’m not sure if this is way too excessive or expensive or not. Is this worth it?

Brian

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Re: Is this too expensive? - Posted by Jimmy

Posted by Jimmy on April 21, 2007 at 13:06:01:

I have no quarrel with attorneys earning fees. I charged a LOT more than $3000 to many of my clients. it all depended on what I was doing, and for whom I was doing it.

BUT.

there is no asset protection that is iron-clad. LLC’s and other limited liability entities do a pretty good job of isolating risks among activities and properties, and separating your personal stuff from the entity’s stuff.

but before you bite off on an asset protection plan, be clear about what you are trying to avoid. are you in a high-risk pccupation (e.g., surgeon)? or is it premises liability you worry about? or is it a grneralized, non-specific fear of being sued?

if the latter, you are being paranoid.

if one of the former, think hard about how he claim can arise.

there are top-down liabilities and bottom-up liabilities.

top-down is not fun. YOU get sued for drunk driving and running over 10 trial lawyers. $100,000,000 udgment. kiss your LLC membership interests goodbye, along with your S corp stock, plus everything else you have that is not protected by state law. and when they grab your entities, they grab what’s inside of them.

bottom-up is different. it comes up inside the entity, and is usually contained there. you have 5 rent houses inside one LLC. a tenant steps throug a rotton railing on the balcony and falls to her death. uh oh. $10,000,000 verdict. kiss all 5 houses goodbye, plus anything else owned by THAT llc. Assuming you treated the LLC like a real entity, your other assets and other entities should be Ok. but expect the planitiff’s counsel to kick the tires pretty hard to make sure.

here’s my advice:

  1. conduct your self honorably and responsibly at all times

  2. carry plenty of insurance, including GL.

  3. take care of problems imediately and conscientiously.

4, don’t concentrate too much wealth in one entity.