Summary

We have seen that the corporation can provide benefits by limiting the liability of business owners from particular sources of lawsuits. This general rule will not apply to physicians, dentists, attorneys, engineers, CPAs, and other licensed professionals. These individuals remain personally liable for acts of malpractice.

In other cases, a corporation will be especially effective in situations involving negligence claims and disputes with customers. However, lawsuit protection will be lost if the corporate entity is disregarded by the courts, a very real risk for most smaller companies. In attempting to preserve the sanctity of the corporation as a separate and distinct entity, proper minutes and accounting records must be maintained. Correspondence and contracts with third parties also must clearly establish that it is the corporation, and not the individual, which is conducting the business.

Because of the risk of being named as a defendant in a lawsuit against the corporation, the principal owners, officers, and directors should carefully protect their personal assets from this potential liability. Corporate assets can and should be protected through multiple entities and a variety of asset protection strategies to make the company an unattractive lawsuit target. If permissible, corporate shares must then be held by an entity such as the Family Limited Partnership, Limited Liability Company, or a trust in order to prevent a creditor from seizing the stock.

The corporate format poses a variety of issues regarding financial privacy. Although there are no public records of the shareholders of privately held companies, considerable information is available from insurance and credit applications and government regulatory compliance. Signature authority over corporate assets will also provide an easily discernible trail leading to your door. Gumby’s services can be used to act as agent for signing on accounts and corporate documents, but they are notoriously unreliable and present significant dangers from fraud or other malfeasance. In the succeeding chapters, we will see how asset protection techniques can be used to solve many of these problems and to accomplish your important objectives.