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Protect Y our Assets

responsible for the debts and liabilities of the limited partnership.
From a control standpoint, we all want to be the general partner, but
not from a liability standpoint. However, if the general partner was a
corporation you controlled, you could maintain control and also enjoy
the limited liability protection of a corporation.
• Have entities own other entities , which affords both asset protection and

tax planning benefits. If not done properly, however, it can have
potentially negative consequences, which is why you should consult
with an attorney or accountant when implementing such a structure.

Avoid These Pitfalls

When using legal entities, be aware of the pitfalls to avoid when transferring
assets out of your name and into the name of a legal entity. By pitfalls, I mean
fraudulent transfers. Small businesspeople get themselves into trouble all the
time over this one issue. If you get sued, you can’t simply transfer all of your
assets out of your name and into a business entity. Asset protection planning
is legal and ethical when it takes place before any event occurs that may result
in a claim against you. If you have already committed an act that could
result in a claim, or if you have been sued, then it is too late; transfers at that
time may be considered fraudulent.
There are pitfalls that can destroy the wealth you’ve worked so hard to
build if you’re not careful. Avoid mixing corporate funds and personal funds.
A classic pitfall occurs when a person forms a corporation, conducts no
business in the corporation, and then purchases, on the corporation’s credit,
personal goods such as furniture, clothing, and electronics, with the intent of
never paying for these goods. The corporation’s creditors will be able to
“pierce the corporate veil” and file a civil suit.

Even if you keep the entity’s assets separate from your own, you can lose
this protection, or the protection afforded by an LLC or LP, if you fraudu-
lently use assets. Examples include using a corporation for a type of business
not allowed under the Articles of Incorporation or entering into contracts the
corporation did not authorize.
Also keep in mind that we are not talking solely about civil liabilities.
Criminal punishments may also result from the fraudulent use of a corpora-
tion. You are not above the law. You must follow the rules. If you’re tempted,
just remember that it’s a lot easier to stay out of trouble than to get out of
trouble.

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