AssetProtectionPhysician.com by IRTU,
Physician Asset Protection Against Medical Malpractice
The Wyoming corporation and limited liability company are explained as vehicles to protect assets.
This manual discusses the following issues:
All of the strategies contained in this report enable a businessperson to increase awareness about asset protection arguments. There are no offshore structures involved in any of this discussion.
Please be advised that the use of offshore trusts, International Business Corporations and other entities may run afoul of U.S. laws. Please advise a competent tax professional and legal counsel before implementation of any of these strategies.
FORMING THE CORPORATION: DELAWARE, NEVADA OR WYOMING?
Where you form and operate the corporation is determined by the following criteria:
1. Business friendly environment
2. The availability of professional management is important. This is what makes the corporate presence possible in another state, if needed.
Delaware is the best state to incorporate a business when the intent is to trade its stock on an exchange (go public). Itâ€™s best suited for large and publicly traded companies. Delaware has maintained its lead, in the number of total corporations formed, due to effective marketing by the incorporators in that state and by the state of Delaware. Therefore, if your business is destined to grow into another Fortune 500 company, then Delaware is for you.
Wyoming and Nevada Qualify As Options
The Nevada Revised Statutes and the Wyoming Business Corporation Act offer similar flexibility in the ownership of the stock certificates, stock votes, the indemnification of corporate officers, and reporting information to their respective Secretary Of State.
A comparison chart is provided on the next page to compare the cost and benefits of a Nevada and Wyoming corporations, respectively.
There are two basic differences between Nevada and Wyoming:
STEPS FOR IMPLEMENTATION:
Corporate Presence = Phone + Fax + Address + Corporate Officer + Banking + Sales
Phone: For those business people who receive calls from prospective clients and customers, a phone number is installed at the Qwest phone company (Qwest.com). This market expansion line is call-forwarded to any U.S. number. Therefore, a person can receive calls with a (307) Wyoming area code and do business from anywhere in the country, or even Canada. This is a great service if you're constantly on the go and work from a cell phone.
Vonage.com This is another telephone option. The apparatus attaches to your cable modem and facilitates national and international toll calls at the fraction of the rate of regular telephone service. Save money and stay in contact with prospective clients with Vonage.
Fax: We suggest that you obtain a fax number through Efax.com. Faxes are automatically forwarded to the email account of your choice. Retrieve the fax as an email attachment from anywhere in the world.
Address: The corporate presence numbers are separate than the numbers just described above. The purpose is to validate the existence of the corporation in Wyoming. An office package is available from Gusta, Inc. for only $350 per year. It includes a PO Box and business street address in a business building in Casper, WY, a Wyoming fax number and a Wyoming phone number answered by a live receptionist. The phone is answered in the name of the corporate officer representing your corporation. Call Gusta, Inc., at 307.237.2580, for more information.
If you're intending to do business out of Wyoming, consider an upgrade to a full office package. Do business out of Wyoming with an immediate staff at your fingertips.
Banking: For many years, the Nevada resident agents promoted Nevada bank accounts to "solidify" the corporate presence in Nevada. This was true years ago. With the advent of the internet and the proliferation of online banking, itâ€™s no longer necessary to bank where you do business. Internet banks in Virginia (Etrade.com), Georgia (Netbank.com) and in many other states, is making hometown banking completely unnecessary.
An important rules of banking:
For those person concerned with privacy, donâ€™t bank in Wyoming if youâ€™re a Wyoming corporation. The annual report must detail all business assets held in the state of Wyoming. This information is not reportable if the asset is outside the jurisdiction of Wyoming. This is important when dealing with a hostile creditor or divorce situation.
Sales: An independent contractor or affiliate can sell products and/or services for your corporation and receive a commission. The independent contractor, must pay any applicable state and federal income tax for income paid.
DECREASE LIABILITY WITH TWO CORPORATIONS
FACT: Many people incorporate to limit legal liability, and the legal industry has done well over the years using fear-driven marketing to convince people to form a corporation or limited-liability company.
STRATEGY: Business owners learn to separate businesses using two or more corporations to protect one from the other, in case there's litigation. Examples:
HOW TO USE TWO OR MORE CORPORATIONS
Method #1: Two Separate Corporations Offer Different Products & Services
Two corporations are run separately and are taxed individually.
This method is simple in spreading income between two corporations; however, assets remain exposed to risk from customer liability. This can also lead to confusion on behalf of the customer, unless co-branding is effectively used. This strategy works as long as the businesses are run separately.
Method #2: LLC Used With Two CorporationsIncome from LLC is split between two members, which are corporations.
The income passes through the LLC (taxed as partnership) to the members, Corporation 1 and Corporation 2. Income is split between two corporations, according to their respective interest in the LLC.
ASSET PROTECTION: WHY?
A hostile creditor is a person or other legal entity that seeks to involuntarily extract income or assets from you by any legal means to include litigation, divorce or unfair debt collection. In this discussion, anyone with a business or valuable assets is a target.
Litigators accept cases contingent on the probability of winning the case, obtaining a settlement amount and upon the defendantâ€™s ability to pay. Attorneys assess the defendantâ€™s ability to pay after conducting an asset search using key information, such as the defendantâ€™s name, address, social security number and date of birth. Even when no assets are found, a professional may be automatically targeted due to their capacity to earn income.
Assets that are linked to the name, address, date of birth and social security number of the owner are increasingly subject to collection and confiscation. An effective asset protection plan can disassociate the owner from the assets without losing control of how those assets are used, stored or invested. This critical link must be removed for effective financial privacy and asset protection.
THERE ARE TWO BASIC STRATEGIES:
Control assets without owning them in your own name. An effective asset protection plan enables a person to control assets without linking them to identifiers, such as a name or social security number, that give away the location and ownership of the assets. The C Corporation is used to achieve this objective.
Make the assets unattractive to the hostile creditor. You can make financial holdings, real estate, and other assets unattractive to the creditor. The creditor liable for federal income taxes on income not yet received? Learn about the "charging order" protection and how it can be combined with financial privacy for effective asset protection.
ASSET PROTECTION: WHEN?
Implement an asset protection plan before financial or legal difficulty is encountered.
Asset transfers can be challenged and reversed under the fraudulent conveyance laws if it can be shown that the transfer was done to unfairly frustrate a legitimate creditor.
An effective asset transfer must be completed well in advance of an economic or litigious threat. For example, gifting assets to family members shortly after receiving notice of litigation may result in the undoing of the asset transfer. The hostile creditor could argue that the debtor intended to unfairly frustrate the creditor because of the timing of the asset transfer. Therefore, the timing of the asset transfer is critical to protecting assets from hostile creditors. To prevent such a risk, transfer assets into the assert protection structure prior to possible claims from hostile creditors.
The asset transfer must also have the following additional attributes:
Procrastination As A Risk Factor
Procrastination is a major threat to any asset protection plan. Time works to the advantage of the property owner when an asset protection plan is implemented well in advance of financial or legal difficulties. It demonstrates a lack of intent to frustrate creditors or commit fraud.
Procrastination and haste are two key threats to any attempt to protect assets from abusive and hostile creditors. Haste typically accompanies procrastination because the property owner usually makes serious mistakes in the rush to protect assets, especially when feeling the immediate heat of litigation.
Solvency As A Risk Factor
Insolvency cannot follow asset transfers into any entity, as a means of protecting those assets. This immediately unravels any legitimate attempt to protect assets. It raises red flags and it provides a competent litigator with an argument that the asset transfer caused the insolvency. This is highly suspect when litigation, or other creditor threat, is concerned. For this reason, insolvency must not take place for at least one year after any substantive asset transfer, as a precaution from a potential fraudulent conveyance claim.
A creditor can claim fraudulent conveyance if you deliberately frustrated, delayed, hindered or defrauded the recovery of assets to pay for a legitimate debt. "Gifting" assets to family or a business associate to avoid paying a debt is an example of fraudulent conveyance. The creditor can ask the court to undo the "gift", or asset transfer, and place the asset back in your hands. The creditor then takes your control of that asset to satisfy the debt. Thatâ€™s a simplified explanation of fraudulent conveyance.
Transactions intended to protect assets don't run afoul of fraudulent conveyance issues if structured correctly. Consider these examples:
To avoid a possible fraudulent conveyance claim, consider the following issues:
ASSET PROTECTION USING THE LIMITED LIABILITY COMPANY (L.L.C.)In 1977, Wyoming was the first state to pass a Limited Liability Act. This was the first time the Limited Liability Company (LLC) was introduced to American business. Once the IRS recognized the LLC can be taxed as a partnership (that is, as a pass-through entity), all 50 states passed statutes creating their own version of the LLC.
(1) Single Member LLCs
Generally, when an LLC has only one member, the fact that it is an LLC is ignored or "disregarded" for tax purposes. If the single member is an individual, the single member is essentially treated as a sole proprietor for tax purposes and the LLC income and expenses are reported on the individualâ€™s Form 1040. If, however, the single member is a corporation, the LLC income and expenses are reported on the corporationsâ€™ return, usually Form 1120 or Form 1120S.
(2) Multi-Member LLCs
Most multiple member LLCs are treated as a partnership and file a Partnership Tax Return Form 1065.
Partnerships & Taxation
Partnerships are "pass-through" entities for tax purposes. This means that partnership income, deductions and other items passes through the partnership directly to the partners. Accordingly, each partner takes into account his or her share of partnership income, deductions and other items in determining the partnerâ€™s individual tax liability.
If a judgment is awarded against the LLC itself, it may be levied, and LLCâ€™s property seized or sold in payment. If, however, a judgment is awarded against a member, to the extent that the operating agreement so states, distribution usually cannot be compelled to satisfy a memberâ€™s judgment debt. Creditors have to satisfy themselves with a "charging order." This gives them the rights to any distributions made by the LLC to that particular member, but little else.
The Limited Liability Of A Corporation
When a hostile creditor sues the corporation, normally, it can only take the assets of the corporation. The stockholders are generally not liable for the debts, liabilities and acts of the corporation. This is called "limited liability." This is very different from a partnership, where all partners are liable jointly and severally for everything chargeable to the partnership.
The LLC has the limited liability of a corporation.
The Limited Liability Company (LLC) Is A Hybrid Entity
The LLC offers the pass-through taxation of a partnership and the limited liability of a corporation.
Once the charging order is obtained, the hostile creditor is now first line for any future distributions that are usually paid out to the member(s).
Wyoming Statute 17-15-145. Rights of creditor.
"â€¦The charging order is the exclusive remedy by which a judgment creditor of the member or transferee may satisfy a judgment against the member's interest in a limited liability company."
The Assets Are Made Unattractive To The Creditor
The manager of the LLC can refuse to distribute the earnings. (If the operating agreement so allows.) What is the advantage of withholding the distribution from the hostile creditor?
This means that the creditor is now liable for income taxes on those LLC earnings, whether or not theyâ€™re distributed. The hostile creditor is now liable for taxes on earnings not yet received or for what is typically referred to as "phantom income." This places the member in a stronger position to negotiate a favorable settlement. Hostile creditors donâ€™t want to pay taxes on earned income thatâ€™s out of reach.
For this charging order protection to be most effective, the LLC must
Managers can be people or another business.
ASSET PROTECTION USING THE "C" CORPORATION
Separate assets according to risk level.
For increased protection, separate assets according to their relative level of liability exposure. High-risk assets such as a medical practice or a restaurant are best separated from brokerage accounts and low-risk real estate investments. A risk-producing asset such as an apartment building should be contained in a separate entity from a residence. This separation takes place by placing the assets into separate entities.
The assets are splintered into separate corporations to contain the impact of litigation and to protect the other assets.
THE NOMINEE OFFICER / CORPORATE OFFICER
You control the corporation and the corporation owns the assets. Youâ€™re in charge. The nominee officer works for you in the capacity of Director, President, Vice President, Treasurer and Secretary. This enables you to stay off state records and off the records of database resellers.
Many nominee officers are only willing to serve for the initial sixty (60) days. They only intend to provide minimum service in order to satisfy reporting requirements by the Secretary of State of Nevada or Wyoming. We don't believe this is legitimate. We offer extensive nominee officer services that include corporate coaching and year-around access to the corporate officer and the necessary services to run the corporation.
The role of the nominee officer should be as a functional corporate officer that helps you run the corporation throughout the year. This corporate officer may sign other necessary filings, documents, contracts and leases, as long as a personal guarantee is not required.
Asset Profile, Inc. offers a comprehensive nominee officer service for $300 to $500 per year. Call 484.256.4563 or visit http://www.assetprofile.com for more information.
What are the key areas where a nominee officer is needed to secure initial and continuous privacy for the stockholders? Consider the list below as the major points of coverage for effective privacy:
The duty of the nominee officer is to fill the role of the Director, President, Treasurer and Secretary without revealing the name of the stockholders, and to provide effective business administration. The nominee officer fills this role without owning the corporation or its assets.
Attorney-Client Privilege For Optimal Privacy
For the highest level of protection, the nominee officer should not know the identity of the stockholders. To make this arrangement a reality, the nominee officer should be hired through an attorney. Therefore, the attorney should be the only individual who can identify the stockholder by name or by any other means. Below is a diagram, which illustrates the proper communication channel between the stockholder and the nominee officer, to protect the stockholderâ€™s privacy. This is only effective when the corporation is used to park assets temporarily, conversion into another assets, or for long-term investment.
Always communicate through the attorney to secure this privilege. We provide a password access to the nominee officer in order to secure the attorney-client privilege and maintain the convenience of direct access via phone, fax or email.
Nominee. 1. A person who is proposed for an office, position, or duty. 2. A person designated to act in a place of another, usu. in a very limited way. 3. A party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.
Blackâ€™s Law Dictionary, 7th Edition
The use of nominee stockholders is actually written into the Wyoming Business Corporation Act. This is a strong statement from the Wyoming legislature respecting the privacy of others. In Wyoming, a share may be registered in the name of the shareholder or a nominee of that shareholder.
17-16-140. Definitions. (xxii) "Shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation;
The corporation may establish the procedure in determining who is the rightful owner of those shares.
(i) The types of nominees to which it applies;
(ii) The rights or privileges that the corporation recognizes in a beneficial owner;
(iii) The manner in which the procedure is selected by the nominee;
(iv) The information that shall be provided when the procedure is selected;
(v) The period for which selection of the procedure is effective; and
(vi)Other aspects of the rights and duties created.
One share equals one vote. Control of the share, or possession of it, means that you have control of that vote. The share and the vote are separated when a person signs a proxy agreement. A proxy agreement transfers the vote of a share from one person to another. An irrevocable proxy agreement transfers the stock vote to another person for a period of time.
Example: Mike formed ABC, Inc. He wants someone else to be known as the shareholder but doesnâ€™t want to lose control of the stock votes. Shares are issued to the nominee shareholder. The nominee shareholder signs an irrevocable proxy agreement agreeing that the votes of those shares are irrevocably transferred to Mike. In this way, Mike remains in control and a nominee shareholder is listed on the corporate records.
BENEFIT: Most hostile creditors donâ€™t ask about nominee shareholders and irrevocable proxy agreements. Mike is able to maintain control without identifying himself as a shareholder. For utmost privacy, the votes or the shares are issued to Mikeâ€™s attorney. The attorney-client privilege provides a layer of anonymity thatâ€™s difficult to pierce unless the corporation or "Mike" has engaged in some fraudulent or illegal act.
What if the person who owns the votes, "Mike" in the above example, wanted to dispute an issue with the corporation itself? A nominee may dissent on behalf of the beneficial owner of those shares, according to 17-16-1303. Nominee shareholders can also inspect the corporate records, upon the request of the beneficial owner, under 17-16-1602 (f). Seek legal counsel about the strategies reported in this report.
Nominee Stockholders Vs. Bearer Shares
Although bearer shares offer an advantage as far as anonymity and simplicity is concerned, itâ€™s not as effective as the use of nominee stockholders, which enable for someone else to be pointed out as supposed owner. Nominee stockholders hold the advantage when faced with a well-financed creditor determined on piercing the corporate veil and the shield of privacy surrounding the corporation.
In communication with the IRS, consider how the Constructive Ownership of Stock affects tax reporting. Always consult a tax adviser.
The Location Of The Stock Ledger
Wyoming is unusual in terms of the location of the stock ledger because of the following reasons:
The registered agent must know the names and address of the Director(s) and Officer(s), as listed on the annual report with the Wyoming Secretary Of State. This information must be accurate sixty days (60) after filing the annual report.
17-16-507. Duties of the registered agent.
(a) The registered agent shall:
(iv) Maintain at the registered office, the following information which shall be current within sixty (60) days of any change until the corporationâ€™s first annual report is accepted for filing with the secretary of state:
(A) Names and addresses of the corporationâ€™s directors; and
(B) Names and addresses of the corporationâ€™s officers.
Counter-productive for privacy
Many states require that the stock ledger must be in the possession of the registered agent.
Productive for privacy
Nevada requires that the stock ledger be with the resident agent, or the address
where it can be found.
Excellent for privacy
Wyoming doesnâ€™t require that the registered agent know of the stock ledgerâ€™s location.
BURDEN ASSETS WITH DEBT TO REMOVE VALUABLE EQUITY SOUGHT AFTER BY HOSTILE CREDITORS
Ask yourself these questions from the standpoint of the creditor:
The answer is NO. Why? You canâ€™t get blood from a stone. Filing a lien is as simple as filing a piece of paper. And all liens look the same from the standpoint of an outsider, or creditor. The process of attaching friendly liens against your own assets is called equity stripping. This is how immovable assets, such as real estate and rental income, is protected from creditors.
Creditors consider the following questions:
Liens are liens. Hostile creditors look at whether they exist or not. And the order of those liens determines who gets paid and in what order. Creditors know this fact. Thereâ€™s no reason for them to go after a real estate property if itâ€™s more trouble than what itâ€™s worth.
Hostile creditors collect, or hire a professional to do so, depending upon the payoff, opportunity, and work involved. They move on to another debtor if thereâ€™s too much work involved. To professional debt collectors, there are too many debtors and so little time. Theyâ€™ll wait if there arenâ€™t enough assets or if the timing is not right. For those who engage in effective equity stripping, the timing is never right and itâ€™s always better to go after some other debtor. And thereâ€™s always someone else with more vulnerable assets.
First, you need a reason for the debt itself. Sign a promissory note that creates a debt.
Second, the corporation files liens against assets to back up the debt. As any other creditor, the lien is used to support collection of the debt. This is normal business practice. Valuable assets are stripped from their equity through the use of liens. The Wyoming corporation holds these liens as collateral for the repayment of a loan, or some other obligation. Once the liens are filed, hostile creditors perceive the assets as void of equity and leave them alone. See legal counsel for the proper filing of a lien and the necessary documents to substantiate that debt.
Real estate liens are filed with the Recorder Of Deeds office in your county.
Liens against personal property are filed through a Uniform Commercial Code (UCC) filing such as a UCC-1.
Third, maintain the corporation in good standing and the necessary services to secure financial privacy.
Most people are assuming more debt every day. Our debt-laden society and bad spending habits are common. Therefore, such a social problem can be used to a wealthy personâ€™s advantage because it appears so normal to incur so much debt.
Below is an example of how the accumulation of this artificial debt results in the appearance of being less prosperous, as the control over that wealth remains unchanged:
Before Equity Stripping:
After Equity Stripping:
The effect on perceived equity of the assets:
$330,000 Equity â€“ $380,000 in Liens = - 50,000 Total Equity Visible to Hostile Creditors
The equity has shifted to a Wyoming corporation under your private control. The control of the assets has not changed even though the perceived equity has been reduced to less than zero.
C CORPORATION OR LLC? FINANCIAL PRIVACY OR CHARGING ORDER?
Attorneys and accountants commonly favor the LLC due to professional training. This may fly in the face of the goals of the client in several areas. Consider the following issues:
The California Franchise Tax Board, or a regulatory body, has extreme
difficulty finding, tracking, and confiscating assets that are not
connected to your name, address and social security number. Financial
privacy is best here.
The spouse cannot go after assets that he or she doesnâ€™t know exist.
Furthermore, using a C Corporation allows the opportunity to siphon assets
from an existing business to another entity.
Many qualified professionals donâ€™t offer financial privacy solutions because theyâ€™re unfamiliar with the strategy and reliable providers of these services.
Assemble The Team
There are three critical team members that are necessary to put together an effective asset protection plan:
Form The Corporation
The corporation is formed through an attorney. This means that the attorney is paid the full amount to purchase the asset protection structure and its services, plus the legal fees to facilitate the process. This prevents the use of the stockholderâ€™s name, address, social security number and date of birth on any of the corporate or bank records. All materials are sent directly to the attorney and forwarded to you, as the stockholder.
File Liens Against Property
If required, the nominee officer can serve throughout the year signing certain contracts and leases, filing liens against property as requested by the attorney. The stockholder remains in complete control behind the scenes as the nominee officer provides the human face for the corporation.
Maintain The Corporation
Maintain the corporation and its records to reinforce the corporationâ€™s presence and appropriate adherence to federal, state and local laws. The nominee officer fulfills requests in the administration of the corporation. All directives are sent directly through legal counsel.
CALL G.D. JALIL AT 484.256.4563 FOR MORE INFORMATION
ASSET PROTECTION DISCLAIMER
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