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    Category Archives: Entity Structure

    Charging Order Challenge Successful

    If a creditor’s remedy is restricted to a charging order, that means that the creditor cannot get at the assets of a partnership or LLC, right?

    Wrong.

    Most business owners seek to protect their personal assets from problems arising from their business activities. They do this by creating business entities like a partnership or LLC. Unfortunately, sometimes these personal and business worlds collide, and that can be an asset protection nightmare.

    Usually, when these two worlds collide, there is an attempt to attack personal assets by piercing the corporate veil. But as a recent case illustrates, an attack can come through the personal world to attack the business assets…even when that business interest is in a partnership or LLC.

    Forbes recently reported on just such a case in an article titled “Webb & Carey: When Control Is Bad — Receiver Uses Debtors' Controlling Interests In Partnerships To Get At Partnership Assets.”

    There’s a new trick in which a creditor can access assets within a partnership by pairing the often created “charging order” with the powers of a “receiver” who, in return, takes up the powers of a debtor with controlling interests in the partnership. Whew!

    Teaching point: if you have a controlling interest in a partnership or LLC, be aware. A creditor may seek to take control over your interest and thereby for distributions or even the sale of the business.

    As a result, if you are working to protect your assets and the assets of your company, it is worth handing off control and closing that back door before the creditors come.

    Contact Meier Law Firm to discuss your asset protection options.

    Reference: Forbes (June 3, 2012) “Webb & Carey: When Control Is Bad — Receiver Uses Debtors' Controlling Interests In Partnerships To Get At Partnership Assets

    Limited Partnerships, General Liability?

    It is better to never be a general partner if you can avoid it. But if you are going to be a general partner of a limited partnership that is either conducting any substantial business or taking investors, then you need to protect your assets first.

    Personal asset protection is a major motivator behind creating a business entity to conduct business activities. For certain entities that means the protection of a corporate veil, but others are less safe.

    On that note, a recent Forbes article “Miske: The Innocent General Partner Tagged With Liability For Losses Due To Misdeeds Of Another General Partner,” provides a word of caution when it comes limited partnerships via the case of Miske v. Bisno. In that particular case, one general partner in a limited partnership engaged in unwholesome activities, including embezzlement. Naturally, the embezzlement was discovered and led to a loss.

    A limited partner then sued an entirely different general partner for the losses. The innocent general partner protested, arguing that he knew he was liable to third parties (which is bad enough), but not to limited partners in the same way. Unfortunately, the court didn’t agree, ruling that it doesn’t matter whether the suit is third-party or internal since a general partner is liable for the entity of which he or she is a general partner. As stated in the original article, “general partner” is just another way of saying “generally liable.”

    Before choosing and using an entity to protect your assets and your individual liability, contact Meier Law Firm to help you navigate the land mines.

    Reference: Forbes (May 25, 2012) “Miske: The Innocent General Partner Tagged With Liability For Losses Due To Misdeeds Of Another General Partner

    Business Entity Selection Secrets

    If you have a corporation—one you formed or inherited—should it be S or C? What does this alphabet soup even mean?

    A business is what you make of it, and that’s not just a marketing tactic or a business school platitude. When it comes to structuring your business, your selection of “entity” is key.

    Do you own, stand to inherit, or are just plain curious about how to start a business (especially if you have been downsized in this economy)? If yes, then you should read a recent article in Forbes explaining the differences between a “C” and an “S” corporation. It is titled “C or S Corporation Choice is Critical for Small Business.”

    Spoiler alert: the main distinctions between the two basic corporate structures are all about the tax code. Yaaaawn. That noted, however, there are other significant differences between the two. Not to muddy the already murky waters, the article explores the terrain between these old standards and the new standard that is the LLC, or Limited Liability Company.

    LLCs are, by and large, simpler entities, but that doesn’t mean they are ideal in all situations. For some current reading on the capabilities of the LLC, it’s worth taking a hop over to the Wall Street Journal, which recently published an article titled “An Inspired Financing Choice for Artists and Patrons."

    These articles only scratch the surface regarding what you need to know about the veritable alphabet soup of available business structures. Ultimately, you will need to bite the bullet and obtain qualified legal counsel to help you select and structure the appropriate entity for your unique circumstances and objectives.

    Contact Meier Law Firm for additional information on business planning.

    Reference: Forbes (May 3, 2012) “C or S Corporation Choice is Critical for Small Business

                      The Wall Street Journal (May 21, 2012) “An Inspired Financing Choice for Artists and Patrons




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