Asset Protection Strategies
Here are some examples of how some people structure their companies to realize the best asset protection for themselves and the advantages of incorporation.
The corporate asset protection strategy discussed below provides an overview of how a business can benefit by engaging in business with another corporation. The concept is presented in basic terms. Employing the strategy to suit the specific needs of your business requires input from an experienced business person. Wyoming Corporate Services suggests that you contact other professionals that you rely upon, such as your CPA, attorney, and/or financial advisor. We can also make a recommendation of non-affiliated professionals based upon your request.
This sound business strategy takes advantage of two powerful features of corporations:
- Corporations are considered independent legal entities, separate from their owners;
- Corporations can be based in any state, regardless of where their stockholders, directors, and officers live.
The principle behind this strategic asset protection strategy is based upon two companies engaged in business with each other. The first business entity is one’s home-state company which may operate in any state. Simply, this is your current business. The second business entity is a Wyoming corporation. By establishing a business relationship between these independent corporations, one’s home-state company is likely to achieve greater asset protection and a reduction in state income taxes. Consequently, the economic status of one’s Wyoming corporation improves. This asset protection strategy does not reduce federal taxes.
Establishing Loss, Inc. and Best Holdings
Consider a situation whereby one’s business does not profit. This can be construed in a number of ways depending on how total revenues, total expenses, and gross and taxable income are factored, but in general, one’s net earnings are limited or non-existent. Extend this particular situation to where this business also retains no assets. A consequence of this situation is that the taxable income remains limited, and to a large extent, your liability is reduced. The issue regarding a reduction in liability corresponds to being less attractive for a lawsuit. The adage, “You can’t squeeze blood out of a turnip,” is appropriate. In general, lawsuits are less likely to endure when the target has little, if anything, to award.
A number of points should be expanded upon. First, the issue regarding limiting one’s liability does not indemnify one’s negligence or wrongdoing. It does, however, attend to matters such as frivolous lawsuits and unexpected creditor claims. In addition to all the precautions and insurance that a business utilizes, this business strategy is a crucial and prudent way to reduce your likelihood of a lawsuit. Second, one might inquire about the nature of not profiting in business. A fact of this strategy is that a business does profit. The profitable business, however, is not your home-state corporation (when compared to the Wyoming corporation). Therefore, your home-state business is referred to as Loss, Inc. The proper use of Loss, Inc., a business with little taxable earnings and limited assets, can not only meet one’s business expectations but it can do so by engaging in more efficient uses of its revenue.
To achieve the advantages of incorporation of one’s home-state business, although it exists as Loss, Inc., this particular business must work in conjunction with a Wyoming corporation. In general, Loss, Inc. will engage in business with Best Holdings. Best Holdings, the name appropriately associated with the Wyoming corporation, is an independent business from Loss, Inc. Its corporate base, business license, office, telephone, and employees reside in the business preferred state of Wyoming.
The basis for this asset protection strategy is to have both corporations do real business with one another. An exchange relationship exists whereby the assets of Loss, Inc. are encumbered by Best Holdings, hence, constructing a form of judgment-proofing one’s business. Also, the revenue of Loss, Inc. is offset by expenses incurred from doing business with Best Holdings. Thus, Loss, Inc. earns little, if any, taxable income. In exchange, Best Holdings provides a required and legitimate service for Loss, Inc.
The Wyoming corporation is referred to as “Best Holdings” because essentially it has encumbered assets and accepts much of Loss, Inc.’s revenue as payment for services rendered. Best Holdings can also participate in a loan agreement with Loss, Inc.
There are a number of particular factors omitted from this discussion thus far. For example, questions concerning the control of Best Holdings, capitalizing the corpus of your Wyoming corporation, establishing a legitimate business arrangement between both corporations, and specifics regarding the use of stock issuance, promissory notes, security agreements, and interest payments need to be addressed. These particular issues can be clearly and concisely explained by your financial advisor once your specific situation is presented to him or her.
What is important to note is that the Best Holdings/Loss, Inc. strategy can provide a significant economic benefit to the business person and a viable method for protecting Loss, Inc. assets. A prudent business person may find it necessary to discuss this strategy with the right persons before acting. Since Wyoming Corporate Services does not provide legal, accounting, or other professional service advice, our account executives not only welcome the input from persons that the client may require for additional assistance, but will recommend such persons based on the client’s request.
The goal that Wyoming Corporate Services, Inc. continues to strive for is to help establish the most effective and efficient business protection strategy suitable for you. Wyoming Corporate Services provides a way for you to achieve the maximum benefit from your corporation using the best asset protection strategies in the most cost-effective way possible.
Call us today to start your company, learn more about the advantages of incorporation strategies in Wyoming, or purchase a shelf company.