Small Business Owners and Public Company Executives Both Need Asset Protection Planning

Posted on June 22, 2011 by Ken Laino

A June 8, 2011 New York Times article by Steven M. Davidoff (a law professor at the University of Connecticut School of Law) notes that personal liability for directors and officers of large publicly held companies is less common than most of us think.  Professor Davidoff argues that the upside of serving as a director or officer of a large public company is huge, and the down-side is very limited.

Even if the potential liability of public company officers and directors is not all that high, such individuals are still in need of asset protection planning.  These individuals will generally have a high net worth.  They can face potential liability from numerous other sources -- anything from divorce to an auto accident.  While many potential risks can be covered by insurance, personal asset protection is still advisable.

Small business owners may face a far greater risk of personal liability than public company officers and directors for a variety of reasons:

  • Small business owners frequently have to personally guarantee company obligations -- which makes them directly responsible for those debts.
  • "Piercing the corporate veil" arguments will more likely be raised against a smaller business than a larger one.
  • Legal fees alone can be catastrophic for a small to medium sized business owner, even if he or she is eventually successful on the underlying claim.
  • Smaller businesses and their owners frequently carry less insurance than larger companies.

Whether you are running an international conglomerate or you own a small or medium sized business, you should focus on protecting your personal assets to the greatest extent permitted by applicable law.

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New Nevada Law Increases Protection of Single Owners of Corporations and LLCs

Posted on June 21, 2011 by Ken Laino

On June 16, 2011, Nevada's governor signed a new law specifically making a charging order the exclusive remedy of a judgment creditor against owners of both LLCs and corporations in Nevada.  The legislation specifically includes a sole member of an LLC and a sole shareholder of a corporation.

Nevada is clearly working to provide better asset protection for owners of closely held businesses.  The new law, which was signed by the governor a few days ago, passed the Nevada senate by a vote of 21-0 and the Nevada Assembly by a vote of 42-0.

Earlier this year, the Florida Supreme Court ruled that under Florida law, creditors of a sole member of an LLC were not limited to pursuing a charging order, but could also pursue other remedies against that debtor.  Since that time, a lot of attention has been focused on single member LLCs.

Since the new Nevada statute is only a few days old, commentators are just beginning to offer insights into the new legislation.  But the new Nevada statute is a clear reminder that some states provide better protection than others for business owners (particularly single owners).  Nevada, like Delaware, is currently a good choice for forming a corporation or a limited liability company from an asset protection standpoint.

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