Asset Protection for Business Owners Eduardo R. Arista, CPA, Esq. Notice: The following slides consist of general information, and are not meant to be used to analyze any specific situation. These slides should not be relied upon to resolve any specific legal issue. Please seek legal counsel as warranted. Arista & Herran, P.L. Gables International Plaza 2655 Le Jeune Road, Suite 700 Coral Gables, Florida Telephone:
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 2 Agenda Spotting Unnecessary Exposure and Identifying Legal Asset Protection Opportunities. Looking Out for Ways your Client can Protect Themselves from their Business and Protect Their Business from Themselves Recognizing both Tax and Legal Choice of Entity Considerations
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 3 What is Asset Protection? Taking advance legal measures to delay, deter or completely avoid the attachment and levy of property by a judgment creditor Judgment Creditor – Definition and Examples Attachment vs. Levy LLC Asset Protection Coming Up
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 4 Why Do They Need It? “It won’t happen to me” “I have insurance” “I’ll just put everything ____’s name” Acceptable Business Risk
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 5 Planning Methodology Evaluation consists of: Understanding your clients' personal and business goals and limitations Assessing your clients' Business, Real Estate and Investment Portfolio Collaborating with your clients' Attorney, Insurance Professional and Financial Adviser
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 6 Planning Methodology Implementation may include: Executing fundamental estate planning documents to prepare for death or incapacity Sophisticated Trusts, Family Limited Partnerships and Offshore Planning Conversion, formation or recapitalization of business entities Executing partnership, shareholder or operating agreements
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 7 Planning Methodology Implementation may also include: Changing title to stock and real estate Reallocating liquid investments Refinancing / Leveraging Assets Purchasing Life Insurance and/or Annuities
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 8 Pitfalls of Asset Protection Asset protection planning must take into account corporate, estate and tax law and must be handled carefully to avoid: Statutory Liability Fraudulent Conveyance Exposure Inadvertent Loss of Control Transaction Costs; Sales/Income Tax
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 9 Protecting Your Clients’ Business as an Asset Manner of Stock Ownership Separating Operations from Business Assets Leveraging Business Assets
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 10 Protecting Your Clients’ Business as an Asset Choice of Entity Partnership: Joint and Several LLC: Operating Agreement Corporations: Shareholder Agreement
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 11 Limiting Your Personal Liability Not Asset Protection Piercing the Corporate “Veil” Personal Torts & Vicarious Liability Personal Contractual Liability
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 12 Limited Liability Company Hybrid Entity Members, Managers and Managing Members Operating Agreement –Default Rules –Statutory Limitations –Style
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 13 LLC Tax Characteristics Partnership, Corporate or Disregarded Entity Default Classifications Permissible Classifications S vs. K vs. C
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 14 LLC Asset Protection Partner creditors can foreclose lien on partnership interest Shareholder’s creditors can levy stock as personal property Member’s creditors limited to charging order Single-member LLC
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 15 Transferability of Ownership LLC Default: –may assign economic interest; –no transfer of voting interest without unanimous consent of members Corporate Default: free transferability
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 16 Right of Assignee to Become Member. § An assignee of a limited liability company interest may become a member only by unanimous consent of the non-assigning members.
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 17 Agency of Members and Managers or Managing Members. § Member Managed Member Manager Managed Manager Even Real Property
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 18 Powers, Duties and Management LP: all managerial power vested in GP(s) GP: pro rata Corporation: Board of Directors LLC: Member or Manager Managed or Corp Style
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved. 19 Conversion to LLC Statutorily Permitted in FL Partnership or Corporation can Convert Tax Free “F” Reorg if going from S-Corp to LLC taxed as S-Corp –Need to “Check the Box” –Does not require new S-Election –Same TIN Pitfalls
Copyright 2008 Eduardo R. Arista, P.A. All rights reserved Eduardo R. Arista, CPA, Esq. Arista & Herran, P.L. Gables International Plaza 2655 Le Jeune Road, Suite 700 Coral Gables, Florida Telephone: