Using Multiple Business Entities for Asset Protection

One simple technique that is often overlooked when planning for asset protection is the use of multiple business entities in order to segregate liability. For example, consider the case of Tom, the owner of a lumber company and the building where the company is located. Tom has an employee Rob who just caused an automobile accident while delivering materials to a construction site. Because Rob was in the course and scope of his employment, the lumber company is responsible for the damages he caused. Unfortunately, they did not have adequate insurance to cover all of the damages. If Tom ran everything as a sole proprietorship, the company, the building, even his personal home may be at risk. If he owns the company and building in a single entity such as a limited liability company (LLC), his home is now safe, but building is still at risk for this liability. If Tom had used multiple entities – for example, one LLC to own the lumber company and one LLC to own the building, the building would be protected.LLCs can be created to own specialized or valuable equipment and/or real estate to remove these assets from an operating entity. This allows the real estate, equipment and even securities accounts to be segregated from the greater exposure to risk posed by operational entities. As has been discussed in other posts, the use of entities has many estate planning and business planning benefits. Consider whether using multiple entities in your situation can increase your protection from liability.