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-   -   Incorporating For Asset Protection (http://www.smallbusinessbrief.com/forum/showthread.php?t=41855)

sydthesquid 29th June 2011 07:16 PM

Incorporating For Asset Protection
 
This isn't exactly about insurance really, though it's related. Move this thread if need be- but I didn't find a more pertinent forum area to post this question int. And I did lots of searching prior to posting but I saw nothing that really pertained to my specific situation.

The background:
I am a sole proprietor based in Alberta, mainly working as a sales rep for an american company selling used commercial machinery and such, online or over the phone, most clients in USA but some in Canada and elsewhere in the world. Some fairly big ticket items- sometimes in range of $10,000 - 50,000 transactions.

I get paid commissions in US Dollars (poor me) usually by wire transfer to a business acct that is under a registered trade name, but as a sole propietor it is still essentially no different than a personal bank account. I am not an employee of the company, and I have no benefits of any kind from them. 100% commission, and the way it works is that I also am responsible for about half of any financial loss in any of my deals, whether it was the result of something I did wrong or not. No exceptions.

Being used equipment, and given today's demanding and litigous consumer, as hard as I try to deal honestly and provide the right advice, things can get ugly at times.

I've been doing this 10 years and (knocks on wood) no lawsuits so far. The owner of the US company, he claims that in any case of a customer suing us for something that happens on one of my deals, I would be covered by his/the company's insurance policy. I am not so convinced that if put to the test, it would work exactly as it should. What if the lawyer bypasses the US company and just comes directly after me, for negligence or whatever.

My question:
I've been considering incorporating the business since the concensus seems to be that it would protect my personal assets from lawsuits etc. Though a trusted accountant/financial advisor/insurance salesman type acquaintence of mine says an aggressive lawyer can still go after me personally.

I am not interesed in any tax benefits, the "business" is 100% me and only me. I don't really want to go through the cost and hassle of incorporating- my sole reason for doing it would be to protect my family home, car, savings, assets etc from some flippant lawsuit. Is a individual, that is the only shareholder, the CEO and bottlewasher, really protected under the corporate umbrella?

Please don't just say consult a lawyer, I'm just looking for some sharing of knowledge here, I don't have a bunch of money to pay for legal advise at this point.

lordspace 30th June 2011 01:02 AM

Hi Sydthesquid,

It is time to listen to your 6th sense.

maybe you can check with local business incubators.
they might give you some affordable contacts.
otherwise you could try services such as: justanswer.com
I've asked for a legal advice on that site but didn't get one for 3-4 days. You might have more luck with it.

I asked a retired manager should I incorporate.
He told me when I start making more than 30k then it makes sense to incorporate.

I think that you should incorporate ... just by looking at the transaction numbers you mentioned.
You can't avoid the lawyer. It should be money well spent if it's the right one I guess.

Good luck.

sydthesquid 1st July 2011 10:03 AM

Thanks for the feedback, lordspace. Thanks for putting up with my long post, too.
I guess you're right- I do tend to have good intuition if I just listen to it. I guess I'm resisting since I made it this far as a sole proprietor, do my own taxes every year, and don't want the added cost or hassle of incorporating- since it seems that for most people it's about tax breaks, which won't help me since I'll be spending every penny coming in to the corp anyways out of necessity, and then rumors are that your personal assets are not as untouchable as some people think- if that's the case, it's a 10 foot pole for me...
I'll probably seek out a lawyer.

BeTheBest 1st July 2011 01:16 PM

Hi sydthesquid!
For what it's worth... and I am speaking from a position of BEING sued... for totally other issues... and I understand your position.

Regarding incorporation? I think you should. It's not that costly if you don't spend all the money on the fancy stamp and ledger... keep it simple. But it does show a 'professional' side that sole prop. does not. Protect assets? Well, the other posts are correct. Lawyers tend to put COMPANY NAME and YOUR NAME on documents... so you get dragged into law suites no matter what.

With respect to the company insurance? I agree with you... BUT.. I have also been involved with this... and a company that ACTUALLY ADDED MY COMPANY AS A 'NAMED INSURED'. The document was issued by THEIR insurance company. It has been a few years... but that is certainly worth looking into.

Just another thought; What about a disclaimer on your communication. Something that you can include as a signature in your e-mail, etc. Something that states you represent the details as provided by the seller, you make no warranty or guarantee about condition etc., and there is also that term called 'MERCHANTABILITY'.. (not even sure of spelling) but basically state that YOU CAN NOT GUARANTEE THAT THE EQUIPMENT YOU ARE PURCHASING WILL EVEN WORK FOR THE REASON YOU'RE PURCHASING IT FOR.

In agreements.. I would have that included and BE SURE THE BUYER INITIALS THAT.

You may want to see a lawyer about getting that made up... or better yet, see what others are doing in the market.

In short, I don't think there is anything you can do to GUARANTEE your position... but setting yourself up in a professional manner will certainly stop the ones that try to scam you.

Hope this helps! Good luck!

sydthesquid 7th July 2011 09:10 AM

Thanks BTB,
The organization that I "work for" (I use the quotes because I am not technically their employee, but it's my full time gig and I play by their rules) has all the sales agreements and such worked out so that we are covering our butts for the most part.
It's hard to imagine what it is exactly that I do, for most normal 9 to 5ers, but I can say that whether I am incorporated or not would have zero bearing on my image, professionalism, etc.
I may be protected somewhat by that company's liability insurance, but I was just envisioning a case where maybe, for example, I recommended a certain used machine to a potential customer, and it turned out that it didn't have all the current safety features, someone gets injured, and instead of, or in addition to, coming after the company I sell for, they come after me personally, for negligence or whatever.
But I've pretty much come to the conclusion that in my case, if I incorporate, being the only person in the corporation, and given what I do in dealing directly with people, there is effectively no "veil" to hide behind. I am not making a product, I am providing a service so to speak, and that service is me. So I really doubt the corporate shell is going to protect me at all. And that is the ONLY reason I would incorporate, is for asset protection.

BeTheBest 9th July 2011 01:44 PM

Hi sydthesquid,

I fully understand what you're saying. The one question I have (and maybe you do not want to speak to it in an open forum) is that what brought this on?? If you have been doing this for all this time, why are you thinking about this now?? Did something happen to bring this up??

The other matter... and I don't expect you to get into this here... is what is your personal situation?? What I am thinking you should consider is things like:

- If you own a home, who is on title?? You may elect to 'move' that into your wife's name (assuming you have a wife)

- Other assets of value? Same sort of issue. You can NOT do this when trouble comes knocking... just like you can't dispose of assets just before going bankrupt, but you CAN do this as a matter of planning.

As an example, in the case of a home... that you put in your wife's name... and trouble comes calling... well, you don't own a home... so there is nothing that they can 'attach' to.

On the other hand... you have to be comfortable with that move.

There are also corporate structures that will let you do nothing but hold assets... and utilize nominee directors and shareholders... therefore making it all protected. That could be an option.

I guess what I am saying is... it really depends not only on your business and relationships with who you work with... but your personal situation too.

It may just be best to lay it all out to a trusted professional and get an opinion. Even if it costs a couple of hundred... and usually the first hour will be free anyway... you will get an opinion from somebody who has done this for others. That will give you the best framework or idea for how you should move forward.

Hope this helps! Good luck!

chizcurlz 5th June 2012 10:46 AM

The main thing to a planner must remember about his asset protection is that many of these methods don’t work if they attempt to protect the assets after they have been sued. It’s really necessary to start the process of protecting your assets before creditors are able to file legal actions against you.


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