No matter the type of business you conduct, there’s a substantial risk of being sued in our litigious society.
Lawsuits can range from claims of negligence to defective products to disputes with employees. Incorporating is a means of guarding against these potential threats.
Single Incorporation – Protecting Your Personal Assets Incorporating your business is a way of creating a legal wall between your personal assets and business. Any judgment against your business won’t impact your personal assets.
While your home, savings, stocks, etc., are protected, what happens to your business? If a judgment is rendered against your company, the company assets are as good as gone. This does not have to be true.
Double Incorporation Strategy – Protect Your Business Assets Many companies can benefit from pursuing a double incorporation strategy. The strategy is intended to deal with the scenario where a company has significant assets that are vulnerable to litigation risk. Should you incorporate your business, it’s all good and well that your personal assets aren’t at risk. But what if your company has lots of high value assets like manufacturing machinery, office equipment, popular domain name, custom software or other things? Merely incorporating your business won’t protect these assets since they’re owned by the company entity.
Since a successful lawsuit would result in a judgment against the company entity, all assets of this business could be captured as part of their judgment. In short, you lose your machines, office equipment, intellectual property or any other item of real value. The double incorporation strategy prevents this situation.
As its name implies, the double incorporation strategy includes the development of two business entities. The first is the”at risk” company that interacts with your customers or customers. The second thing, a”holding company”, is then made to have the assets of your company.
This holding company then leases the appropriate business resources to your”at risk” entity. If the”at risk” entity is sued, the holding company only recovers its assets and the plaintiff is forced to pay for pennies on the dollar since the”at risk” entity has few resources. Basically, the plaintiff wins the battle, but loses the war.
Most individuals are aware that a business entity may be used to create a protective shield for their private assets. If your company has high value resources, you can now use this double incorporation strategy to safeguard those assets too.