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(NYPost)   Rich 'Dad,' bankrupt Dad   (nypost.com) divider line 139
    More: Fail, Rich Dad, letter of intents, Kiyosaki  
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11246 clicks; posted to Business » on 10 Oct 2012 at 12:36 PM (1 year ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2012-10-10 03:38:45 PM

xynix: This is why I formed an LLC and put my boat and plane into it as well as my fun car. IF I ever have any accidents in those vehicles they can sue "me LLC" (it's actually named after my dog) but I'm protected. They can't sue me or touch my personal assets. My rental home company (for 4 houses) is in a completely different LLC so if anything happens on those properties they can't sue me personally or touch my other assets formed under the previous LLC. My investments not including retirement is in another LLC. These three are managed under an asset protection trust.. My own personal assets are practically nothing so to sue me personally would get someone practically nothing as it should be.

I highly recommend putting together an asset protection trust when you get to the point that you have assets.. including stocks and whatnot. You can easily transfer stocks to an LLC. There are also huge tax benefits for doing this.


After you get to the gym in 26 minutes you might want to get your liver checked. Looking a little yellow there, bubby.
 
2012-10-10 04:19:33 PM

Magorn: xynix: This is why I formed an LLC and put my boat and plane into it as well as my fun car. IF I ever have any accidents in those vehicles they can sue "me LLC" (it's actually named after my dog) but I'm protected. They can't sue me or touch my personal assets. My rental home company (for 4 houses) is in a completely different LLC so if anything happens on those properties they can't sue me personally or touch my other assets formed under the previous LLC. My investments not including retirement is in another LLC. These three are managed under an asset protection trust.. My own personal assets are practically nothing so to sue me personally would get someone practically nothing as it should be.

I highly recommend putting together an asset protection trust when you get to the point that you have assets.. including stocks and whatnot. You can easily transfer stocks to an LLC. There are also huge tax benefits for doing this.

got bad news for you. I'm pretty sure I could "pierce your corporate veil" faster than a drunk tourist at a bellydance show. Courts have little to no patience for corporations that exiat solely to let people weasel out of their responsibilites and serve no business purpose


Yeah, he's full of shiat.

I like how he doesn't mention that trusts are fairly expensive to keep up.
 
2012-10-10 04:28:41 PM

un4gvn666: I listened to the "Rich Dad, Poor Dad" audio CD a few years back, when I first moved out on my own. It was an endless stream of generalized nothing. No specifics of any kind, just buzzwords and smoke and mirrors. Found out about Dave Ramsey podcasts, threw out the audio CD and never looked back.


I did the same, the general ideas were nice though, in that wealthy and poor people see money different. This is an example of how a wealthy person uses another company for personal gain, then when the bill comes due, screw them. A poor person though can't free-load for that long and if they somehow do, they are personally liable for that debt and it stays with them.
 
2012-10-10 04:35:13 PM

Babwa Wawa: Skipping out on your bills is a good way to stay rich.


Sorta like Romney and his taxes?
 
2012-10-10 04:35:22 PM

jjwars1: Are any of you attorneys? No snark...just curious about the pros and cons here.


No, but this came up years ago with a previous employer. My boss actually tried to run this scam when he was getting a divorce. His lawyer had some polite words on the intelligence and effectiveness of it.

(it's not smart)
(it's not effective)

LLC's work if you're an actual commercial business. If you're trying to shelter assets, not so much. Judges are less then amused by blatant crap like that and they can dissolve the LLC.
 
2012-10-10 04:49:09 PM

Rent Party: Here, let me help you discover just exactly how easy this is.

The purpose of the company is to provide vehicles for business entertainment. As part of my (legitimate) real estate business, I took a prospective client out on the boat for some fishing, drove him to the marina in the car, and afterwards we went on a two day camping excursion where we made use of the ATV.

If he can show they have a legitimate business function, he is acting in the best interest of the company.


Exactly. Which I can.. which I have receipts too.. Which I use as tax deductions.. etc. Again the primary purpose of the LLC is to prevent your assets from being taken by a sue happy normal citizen. It's not so that you can be a douchebag with no consequences. In the courts they will nail you if you're an asshole.. If someone gets hurt on one of my rental properties I am protected from that. If I get into an accident on my boat and someone dies they can't touch my property company. If I purposely cause harm to someone then it's an open game and lawyers + judges will shred me.

Some seem to think that this is done with devious intent and it's not at least by me. It's a way to provide complete transparency to the IRS while protecting myself from sue happy assholes.

The purpose of the trust (and yes it costs a whopping $1000 a year tops to keep up) + the LLCs is to keep what I've worked my ass off for. So if I get into a car accident with someone who sees I drive an expensive car they can't sue me for 1.5 mil and expect to get anything out of it. They can't take the houses I rent out and they can't take my boat (which frankly isn't all that).

In this guys case he had a company.. company A which is worth 8 million or whatever and he did legitimate business in that company with a person who sued and won 20 mil. They won't get 20 mil.. They can't touch his other companys. They'll get only what's in the company that they did business with. Now if the guy did all kinds of illegal crap like Bernie Madoff then it would be open season and all his LLCs would be liable. You can't hide from the law, they will get your ass if your doing illegal shiat.

Again I highly recommend anyone that goes into any business to form a APT and LLC that thing and then wrap your other assets into another LLC. Simply bring one of your customers out on the boat, out to lunch in the car you have in it, and you're square.

I also recommend liability insurance. I have a million on both my rental company and my plane.. Let the insurance company lawyers fight that battle and you're not even paying legal fees. Any overages on lawsuits, say 1.5 mil, would have to come from whatever company is being sued. As long as you're not devious the legal system will work for you.
 
2012-10-10 04:51:34 PM
Kiyosaki has been a douche for several years, fark him up the ass with a rusty screwdriver, or at the very least a 2x4
 
2012-10-10 04:55:07 PM

Rent Party: Here, let me help you discover just exactly how easy this is.

The purpose of the company is to provide vehicles for business entertainment. As part of my (legitimate) real estate business, I took a prospective client out on the boat for some fishing, drove him to the marina in the car, and afterwards we went on a two day camping excursion where we made use of the ATV.

If he can show they have a legitimate business function, he is acting in the best interest of the company.



If the purpose of the company is such, there needs to be a paper trial for the rental, and I'd assume this needs to happen more than once.
 
2012-10-10 05:06:34 PM

Hebalo: Rent Party: Here, let me help you discover just exactly how easy this is.

The purpose of the company is to provide vehicles for business entertainment. As part of my (legitimate) real estate business, I took a prospective client out on the boat for some fishing, drove him to the marina in the car, and afterwards we went on a two day camping excursion where we made use of the ATV.

If he can show they have a legitimate business function, he is acting in the best interest of the company.


If the purpose of the company is such, there needs to be a paper trial for the rental, and I'd assume this needs to happen more than once.


Every incorporation document has a "why this business exists" line in it. "To provide transportation services" is all that is really required. There will also be a line in there that says something like "For all lawful purposes."

And it doesn't have to happen at all. "My LLC generated no income, and had the following expenses" is perfectly legitimate. Just because your business lost money doesn't mean it's not a business.
 
2012-10-10 05:10:14 PM

Rent Party: Every incorporation document has a "why this business exists" line in it. "To provide transportation services" is all that is really required. There will also be a line in there that says something like "For all lawful purposes."

And it doesn't have to happen at all. "My LLC generated no income, and had the following expenses" is perfectly legitimate. Just because your business lost money doesn't mean it's not a business.




My point being when the lawyers come sniffing around, this still looks pretty damn thin.
 
2012-10-10 05:20:28 PM

Rent Party: Every incorporation document has a "why this business exists" line in it. "To provide transportation services" is all that is really required. There will also be a line in there that says something like "For all lawful purposes."

And it doesn't have to happen at all. "My LLC generated no income, and had the following expenses" is perfectly legitimate. Just because your business lost money doesn't mean it's not a business.


Yeah, that still won't save your assets in a divorce, which in my experience is the #1 reason people set up those structures
 
2012-10-10 05:20:33 PM
xynix - Would love to pick your brain on some of these things.
 
2012-10-10 05:22:06 PM
Should be a bit more specific, i'm getting into the rental homes business... and this seems you have a good grasp on the legalities.
 
2012-10-10 05:28:36 PM

Hebalo: Rent Party: Every incorporation document has a "why this business exists" line in it. "To provide transportation services" is all that is really required. There will also be a line in there that says something like "For all lawful purposes."

And it doesn't have to happen at all. "My LLC generated no income, and had the following expenses" is perfectly legitimate. Just because your business lost money doesn't mean it's not a business.



My point being when the lawyers come sniffing around, this still looks pretty damn thin.


It's within the confines of the law, though. That argument is also easy.

"I have a legal business structure registered with the state, a business license with the state in order to conduct operations, and that business files taxes every year. That business holds assets that are depreciated according to state mandated schedules and that are offered for lease according to my businesses business plan. That business has the following list of expenses. My net income (loss) was ($brazillion) Mr. Lawyer-sniffing-around, please explain to Mr. Judge how is that *not* a business, so I can be on my way."

This kind of stuff is set up by people of means for their own benefit. They control the system and have skewed it to their advantage. The reason it seems shady is because most people don't have enough assets to take advantage of it, but that doesn't mean you can't, once you have assets. Fortunately the same laws that allow Mitt Romney to deduct a $70K horse was because he called it a business are the same laws that allow you to call your car or boat a business.

/ Equal protection works both ways.
 
2012-10-10 05:31:38 PM

Lost Thought 00: Rent Party: Every incorporation document has a "why this business exists" line in it. "To provide transportation services" is all that is really required. There will also be a line in there that says something like "For all lawful purposes."

And it doesn't have to happen at all. "My LLC generated no income, and had the following expenses" is perfectly legitimate. Just because your business lost money doesn't mean it's not a business.

Yeah, that still won't save your assets in a divorce, which in my experience is the #1 reason people set up those structures


That's correct.

In a divorce (in community property states, anyway) she's going to be entitled to whatever was accrued during the course of the marriage. That would include your share of whatever LLC you set up.

I actually don't have a problem with that.
 
2012-10-10 05:51:16 PM

Rent Party: Lost Thought 00: Rent Party: Every incorporation document has a "why this business exists" line in it. "To provide transportation services" is all that is really required. There will also be a line in there that says something like "For all lawful purposes."

And it doesn't have to happen at all. "My LLC generated no income, and had the following expenses" is perfectly legitimate. Just because your business lost money doesn't mean it's not a business.

Yeah, that still won't save your assets in a divorce, which in my experience is the #1 reason people set up those structures

That's correct.

In a divorce (in community property states, anyway) she's going to be entitled to whatever was accrued during the course of the marriage. That would include your share of whatever LLC you set up.

I actually don't have a problem with that.


i think that some of the discussion in this thread has failed to recognize that a person's personal assets include his equity interests in LLCs and corps.
 
2012-10-10 05:57:18 PM

pute kisses like a man: Rent Party: Lost Thought 00: Rent Party: Every incorporation document has a "why this business exists" line in it. "To provide transportation services" is all that is really required. There will also be a line in there that says something like "For all lawful purposes."

And it doesn't have to happen at all. "My LLC generated no income, and had the following expenses" is perfectly legitimate. Just because your business lost money doesn't mean it's not a business.

Yeah, that still won't save your assets in a divorce, which in my experience is the #1 reason people set up those structures

That's correct.

In a divorce (in community property states, anyway) she's going to be entitled to whatever was accrued during the course of the marriage. That would include your share of whatever LLC you set up.

I actually don't have a problem with that.

i think that some of the discussion in this thread has failed to recognize that a person's personal assets include his equity interests in LLCs and corps.


In a marriage, that's relevant. In a lawsuit related to the LLC's actions, it's not. That's the point of the LLC. If you borrow the boat and it explodes, you can sue the owner of the boat for not maintaining it, or whatever negligence claim you make. The LLC's assets are up for discussion. The LLC member's assets aren't.
 
2012-10-10 06:03:44 PM

Chaos6980: Should be a bit more specific, i'm getting into the rental homes business... and this seems you have a good grasp on the legalities.


Chaos6980: Should be a bit more specific, i'm getting into the rental homes business... and this seems you have a good grasp on the legalities.


Well first off I'm a software sales guy and not a lawyer. You should find a trusted real estate agent and ask them who they use as counsel and consult with them because laws vary from county to county and especially state to state.

Before you even buy the house you'll want to be represented as an LLC and you'll want to get a large liability policy. Think of it this way.. If you happen to rent to someone who's say, a drug dealer, and they shoot someone on your property you can be sued. It's a no-brainer to protect yourself from these litigious assholes.

I would also highly recommend that you get a general contractors license for your state. This will teach you a lot about the local laws as they pertain to on-site injury as well as property laws and local statutes you'll want to know. This takes time and it's a fairly extensive exam but it will save your ass at some point down the road. Since you'll be dealing with contractors you'll want to be in charge and you'll save the overhead of hiring a GC. You'll also have real skin in the game.

As long as what you do is legal and above board you'll be protected as an individual and your assets will be protected as well. Everything outside that LLC is untouchable. What you can't do is form an LLC for each individual house because a judge will shred that. It also won't protect you from divorce but in many instances will protect you from bankruptcy (assets only, credit will be screwed) so creditors can't go after your individual assets. This is a state by state thing as well though so make sure to ask your lawyer about that.

The good news about the market today is that you can get into good rentals for little money and labor/mats are really cheap .. hell money is really cheap right now too. The chances of failing in this business for someone new to the game is very very low. You're also at an economic time where rentals literally are the difference between homelessness and not. My tenants are wonderful people who fell on hard times and all 4 had to downsize into much smaller rental houses. They have shiat credit and apartments weren't an option and they have no hope of buying something.. From an economic standpoint it's awesome for us and from a personal standpoint it's awesome for them. It's really a win-win and you'll be providing a service for someone who needs it and for someone that will take very good care of your house. However always keep in mind that people like to sue other people and that is where the LLC comes in.
 
2012-10-10 06:12:31 PM

Rent Party: In a marriage, that's relevant. In a lawsuit related to the LLC's actions, it's not. That's the point of the LLC. If you borrow the boat and it explodes, you can sue the owner of the boat for not maintaining it, or whatever negligence claim you make. The LLC's assets are up for discussion. The LLC member's assets aren't.


that's not universally true.
 
2012-10-10 06:19:21 PM

Rent Party: pute kisses like a man: Rent Party: Lost Thought 00: Rent Party: Every incorporation document has a "why this business exists" line in it. "To provide transportation services" is all that is really required. There will also be a line in there that says something like "For all lawful purposes."

And it doesn't have to happen at all. "My LLC generated no income, and had the following expenses" is perfectly legitimate. Just because your business lost money doesn't mean it's not a business.

Yeah, that still won't save your assets in a divorce, which in my experience is the #1 reason people set up those structures

That's correct.

In a divorce (in community property states, anyway) she's going to be entitled to whatever was accrued during the course of the marriage. That would include your share of whatever LLC you set up.

I actually don't have a problem with that.

i think that some of the discussion in this thread has failed to recognize that a person's personal assets include his equity interests in LLCs and corps.

In a marriage, that's relevant. In a lawsuit related to the LLC's actions, it's not. That's the point of the LLC. If you borrow the boat and it explodes, you can sue the owner of the boat for not maintaining it, or whatever negligence claim you make. The LLC's assets are up for discussion. The LLC member's assets aren't.


That is not always the case. Courts are not in the least hesitant to pierce the veil when it can be shown the business entity is merely an alter ego or instrumentality of its owner- this is especially true for what you are talking about. An LLC is simply not the shield you think it is. If the veil is pierced all of your assets are up for grabs, including your ownership interest in your LLCs. The liability shield provided by business entities is not a matter of ritual, owners will be liable when it is equitable to do so.
 
2012-10-10 06:20:45 PM

Chaos6980: Should be a bit more specific, i'm getting into the rental homes business... and this seems you have a good grasp on the legalities.


No. No he does not.
 
2012-10-10 06:21:35 PM

pute kisses like a man: Rent Party: In a marriage, that's relevant. In a lawsuit related to the LLC's actions, it's not. That's the point of the LLC. If you borrow the boat and it explodes, you can sue the owner of the boat for not maintaining it, or whatever negligence claim you make. The LLC's assets are up for discussion. The LLC member's assets aren't.

that's not universally true.


Unless you are alleging fraud by the LLC, it is universally true.
 
2012-10-10 06:24:17 PM

Rent Party: pute kisses like a man: Rent Party: In a marriage, that's relevant. In a lawsuit related to the LLC's actions, it's not. That's the point of the LLC. If you borrow the boat and it explodes, you can sue the owner of the boat for not maintaining it, or whatever negligence claim you make. The LLC's assets are up for discussion. The LLC member's assets aren't.

that's not universally true.

Unless you are alleging fraud by the LLC, it is universally true.


No, fraud is not necessary to pierce. It is sufficient, but not necessary.
 
2012-10-10 06:24:19 PM

Civil Discourse:
In a marriage, that's relevant. In a lawsuit related to the LLC's actions, it's not. That's the point of the LLC. If you borrow the boat and it explodes, you can sue the owner of the boat for not maintaining it, or whatever negligence claim you make. The LLC's assets are up for discussion. The LLC member's assets aren't.

That is not always the case. Courts are not in the least hesitant to pierce the veil when it can be shown the business entity is merely an alter ego or instrumentality of its owner- this is especially true for what you are talking about. An LLC is simply not the shield you think it is. If the veil is pierced all of your assets are up for grabs, including your ownership interest in your LLCs. The liability shield provided by business entities is not a matter of ritual, owners will be liable when it is equitable to do so.


Well, that would be an allegation of fraud, right? If you're alleging fraud, you need to prove that, and that is a whole lot harder than you think. On the other hand, it is relatively easy to prove I'm operating a business.
 
2012-10-10 06:26:15 PM

Civil Discourse: Rent Party: pute kisses like a man: Rent Party: In a marriage, that's relevant. In a lawsuit related to the LLC's actions, it's not. That's the point of the LLC. If you borrow the boat and it explodes, you can sue the owner of the boat for not maintaining it, or whatever negligence claim you make. The LLC's assets are up for discussion. The LLC member's assets aren't.

that's not universally true.

Unless you are alleging fraud by the LLC, it is universally true.

No, fraud is not necessary to pierce. It is sufficient, but not necessary.


Sure it is. "You set up this LLC for some other purpose than that listed on it's formation documents" is an accusation of fraud. All I have to do is demonstrate that I am, in fact, operating a business to make it go away.
 
2012-10-10 06:29:57 PM

Rent Party: Civil Discourse:
In a marriage, that's relevant. In a lawsuit related to the LLC's actions, it's not. That's the point of the LLC. If you borrow the boat and it explodes, you can sue the owner of the boat for not maintaining it, or whatever negligence claim you make. The LLC's assets are up for discussion. The LLC member's assets aren't.

That is not always the case. Courts are not in the least hesitant to pierce the veil when it can be shown the business entity is merely an alter ego or instrumentality of its owner- this is especially true for what you are talking about. An LLC is simply not the shield you think it is. If the veil is pierced all of your assets are up for grabs, including your ownership interest in your LLCs. The liability shield provided by business entities is not a matter of ritual, owners will be liable when it is equitable to do so.

Well, that would be an allegation of fraud, right? If you're alleging fraud, you need to prove that, and that is a whole lot harder than you think. On the other hand, it is relatively easy to prove I'm operating a business.


It is not an allegation of fraud. There is nothing fraudulent about setting up an LLC with one asset. The liability shield is simply one aspect of an LLC, and courts will not let a member of an LLC use that shield if the outcome of allowing it is inequitable to an aggrieved party.
 
2012-10-10 06:34:40 PM

Rent Party: Civil Discourse: Rent Party: pute kisses like a man: Rent Party: In a marriage, that's relevant. In a lawsuit related to the LLC's actions, it's not. That's the point of the LLC. If you borrow the boat and it explodes, you can sue the owner of the boat for not maintaining it, or whatever negligence claim you make. The LLC's assets are up for discussion. The LLC member's assets aren't.

that's not universally true.

Unless you are alleging fraud by the LLC, it is universally true.

No, fraud is not necessary to pierce. It is sufficient, but not necessary.

Sure it is. "You set up this LLC for some other purpose than that listed on it's formation documents" is an accusation of fraud. All I have to do is demonstrate that I am, in fact, operating a business to make it go away.


LLCs have other purposes than simply as a liability shield. Also, even if you are operating a business that is not always a defense. A critical question is whether the owner and the entity operate like a single economic entity. If you underfund the LLC, do not carry sufficient insurance to cover claims, co-mingle LLC funds with your own, treat something like personal property etc... the viel will be pierced. It does not require scienter on the part of the member for a court to do this.
 
2012-10-10 06:35:10 PM

Civil Discourse:
It is not an allegation of fraud. There is nothing fraudulent about setting up an LLC with one asset. The liability shield is simply one aspect of an LLC, and courts will not let a member of an LLC use that shield if the outcome of allowing it is inequitable to an aggrieved party.


It is an allegation of fraud. If I set up the LLC and say it's for one thing, but my real purpose is purely as a liability shield, then that's fraud because that *isn't* what an LLC is for. If I can demonstrate that I am using the LLC for its intended purpose, you are going to have a really hard time showing that I'm using it purely as a liability shield.

It is a whole lot easier to do the former than the latter.
 
2012-10-10 06:37:48 PM

Rent Party: Civil Discourse:
It is not an allegation of fraud. There is nothing fraudulent about setting up an LLC with one asset. The liability shield is simply one aspect of an LLC, and courts will not let a member of an LLC use that shield if the outcome of allowing it is inequitable to an aggrieved party.

It is an allegation of fraud. If I set up the LLC and say it's for one thing, but my real purpose is purely as a liability shield, then that's fraud because that *isn't* what an LLC is for. If I can demonstrate that I am using the LLC for its intended purpose, you are going to have a really hard time showing that I'm using it purely as a liability shield.

It is a whole lot easier to do the former than the latter.


Yes, that is actually one of the purposes of an LLC. You just can not be one with the LLC. However, to use the LLC as a liability shield it must look and act like an entity that is economically distinct from yourself. Your boat LLC is not a distinct economic entity for the purposes of equity.
 
2012-10-10 06:39:02 PM

Civil Discourse: Rent Party: Civil Discourse: Rent Party: pute kisses like a man: Rent Party: In a marriage, that's relevant. In a lawsuit related to the LLC's actions, it's not. That's the point of the LLC. If you borrow the boat and it explodes, you can sue the owner of the boat for not maintaining it, or whatever negligence claim you make. The LLC's assets are up for discussion. The LLC member's assets aren't.

that's not universally true.

Unless you are alleging fraud by the LLC, it is universally true.

No, fraud is not necessary to pierce. It is sufficient, but not necessary.

Sure it is. "You set up this LLC for some other purpose than that listed on it's formation documents" is an accusation of fraud. All I have to do is demonstrate that I am, in fact, operating a business to make it go away.

LLCs have other purposes than simply as a liability shield. Also, even if you are operating a business that is not always a defense. A critical question is whether the owner and the entity operate like a single economic entity. If you underfund the LLC, do not carry sufficient insurance to cover claims, co-mingle LLC funds with your own, treat something like personal property etc... the viel will be pierced. It does not require scienter on the part of the member for a court to do this.


Everything you are saying means you're not operating as an LLC. That would mean "not operating a business." Or more appropriately "operating as a sole proprietor." That is particularly true of commingling of funds.

But that is easy to deal with, too, if you know what you're doing. In my accounting journal, it's "Rent Party added $brazillion to cash, and received equity." Balance sheets are adjusted, life goes on.

Now the money isn't mine, a larger share of the LLC is, and the LLC has more money.
 
2012-10-10 06:39:56 PM

Civil Discourse: Rent Party: Civil Discourse:
It is not an allegation of fraud. There is nothing fraudulent about setting up an LLC with one asset. The liability shield is simply one aspect of an LLC, and courts will not let a member of an LLC use that shield if the outcome of allowing it is inequitable to an aggrieved party.

It is an allegation of fraud. If I set up the LLC and say it's for one thing, but my real purpose is purely as a liability shield, then that's fraud because that *isn't* what an LLC is for. If I can demonstrate that I am using the LLC for its intended purpose, you are going to have a really hard time showing that I'm using it purely as a liability shield.

It is a whole lot easier to do the former than the latter.

Yes, that is actually one of the purposes of an LLC. You just can not be one with the LLC. However, to use the LLC as a liability shield it must look and act like an entity that is economically distinct from yourself. Your boat LLC is not a distinct economic entity for the purposes of equity.


/proofreading is my friend
 
2012-10-10 06:41:48 PM

Civil Discourse:
Yes, that is actually one of the purposes of an LLC. You just can not be one with the LLC. However, to use the LLC as a liability shield it must look and act like an entity that is economically distinct from yourself. Your boat LLC is not a distinct economic entity for the purposes of equity.


The LLC owns the boat. The boat is available for leasing. Revenues from those operations are returned to the LLC. The LLC expends cash to maintain the boat. Profits, if any, passed through to the LLC members.

How is it not a distinct economic entity?
 
2012-10-10 06:46:06 PM

Rent Party: Civil Discourse: Rent Party: Civil Discourse: Rent Party: pute kisses like a man: Rent Party: In a marriage, that's relevant. In a lawsuit related to the LLC's actions, it's not. That's the point of the LLC. If you borrow the boat and it explodes, you can sue the owner of the boat for not maintaining it, or whatever negligence claim you make. The LLC's assets are up for discussion. The LLC member's assets aren't.

that's not universally true.

Unless you are alleging fraud by the LLC, it is universally true.

No, fraud is not necessary to pierce. It is sufficient, but not necessary.

Sure it is. "You set up this LLC for some other purpose than that listed on it's formation documents" is an accusation of fraud. All I have to do is demonstrate that I am, in fact, operating a business to make it go away.

LLCs have other purposes than simply as a liability shield. Also, even if you are operating a business that is not always a defense. A critical question is whether the owner and the entity operate like a single economic entity. If you underfund the LLC, do not carry sufficient insurance to cover claims, co-mingle LLC funds with your own, treat something like personal property etc... the viel will be pierced. It does not require scienter on the part of the member for a court to do this.

Everything you are saying means you're not operating as an LLC. That would mean "not operating a business." Or more appropriately "operating as a sole proprietor." That is particularly true of commingling of funds.

But that is easy to deal with, too, if you know what you're doing. In my accounting journal, it's "Rent Party added $brazillion to cash, and received equity." Balance sheets are adjusted, life goes on.

Now the money isn't mine, a larger share of the LLC is, and the LLC has more money.


No one simply "operates as an LLC". The LLC is a creature of statute much like LLPs and Corporations- forming one requires an affirmative election to do so by its owners. A person who establishes an LLC then proceeds to use the assets of that LLC as their personal assets is simply not going to receive the benefit of a liability shield. They are perfectly in their rights to form an LLC then use the assets as personal property, and they are still granted the many other benefits of the business form, but if equity requires that form to be pierced then the courts will do it.
 
2012-10-10 06:48:52 PM

Rent Party: Civil Discourse:
Yes, that is actually one of the purposes of an LLC. You just can not be one with the LLC. However, to use the LLC as a liability shield it must look and act like an entity that is economically distinct from yourself. Your boat LLC is not a distinct economic entity for the purposes of equity.

The LLC owns the boat. The boat is available for leasing. Revenues from those operations are returned to the LLC. The LLC expends cash to maintain the boat. Profits, if any, passed through to the LLC members.

How is it not a distinct economic entity?


Ok, that is running a boat rental business. Provided you follow the formalities, you get the shield. If, on the other hand, it is not a boat rental business and that boat is merely your personal boat, you will not be shielded from liability simply because it is an asset of some LLC you set up.
 
2012-10-10 06:51:14 PM
Civil Discourse:


No one simply "operates as an LLC". The LLC is a creature of statute much like LLPs and Corporations- forming one requires an affirmative election to do so by its owners. A person who establishes an LLC then proceeds to use the assets of that LLC as their personal assets is simply not going to receive the benefit of a liability shield. ...


How is it you think an LLC, or any business, is capitalized? How do you think the assets of the LLC become the LLCs?
 
2012-10-10 06:53:29 PM

Civil Discourse: Rent Party: Civil Discourse:
Yes, that is actually one of the purposes of an LLC. You just can not be one with the LLC. However, to use the LLC as a liability shield it must look and act like an entity that is economically distinct from yourself. Your boat LLC is not a distinct economic entity for the purposes of equity.

The LLC owns the boat. The boat is available for leasing. Revenues from those operations are returned to the LLC. The LLC expends cash to maintain the boat. Profits, if any, passed through to the LLC members.

How is it not a distinct economic entity?

Ok, that is running a boat rental business. Provided you follow the formalities, you get the shield. If, on the other hand, it is not a boat rental business and that boat is merely your personal boat, you will not be shielded from liability simply because it is an asset of some LLC you set up.


Well there ya go. Like I said, it is really easy for me to demonstrate I'm operating a business and really hard for someone to prove I'm not.

Going back to my original point, that is exactly how the people that set up the system in the first place want it to be. So use it to your advantage when you can.
 
2012-10-10 06:55:25 PM

Rent Party: pute kisses like a man: Rent Party: In a marriage, that's relevant. In a lawsuit related to the LLC's actions, it's not. That's the point of the LLC. If you borrow the boat and it explodes, you can sue the owner of the boat for not maintaining it, or whatever negligence claim you make. The LLC's assets are up for discussion. The LLC member's assets aren't.

that's not universally true.

Unless you are alleging fraud by the LLC, it is universally true.


Piercing the veil has been talked about. It's not only about fraud.

But, moving aside to something never mentioned. Managers of LLCs owe duties to the LLC. The default LLC is member managed. As a manager, you can be hit personally for that breach of duty (loyalty and care, a negligence standard).

Now, you may think that your company won't sue you. But wait until you lose control to some creditor, receiver, bankruptcy trustee or what have you. It's actually a little sad to see a man's shield become the sword that strikes him. But, I work in bankruptcy, and there's a reason why it's a conflict of interest to represent the person and his company. The two can become enemies.

Just be careful. Listen closely to the lawyer. There are no absolute shields. I'm in bankruptcy. We have powers other courts would not believe.
 
2012-10-10 07:04:02 PM

Rent Party: Moopy Mac: Rent Party: downstairs:
Second question... if an LLC is sued, don't they often also sue officers of the company personally (which I assume you must be one, if not the only one.)

No. That is the entire point of an LLC or corporation. Baring fraud or other illegal acts, the company exists as a separate legal entity from the people that own it or run it. So long as the officers of the company act in the interests of the company, they are not liable.

Which in the (sarcastic?) example given above, would not be the case w/r/t his cars and boat. There is barely even a veil to be pierced.

/One of the factors considered by courts in rejecting the limited liability afforded by LLCs (and other entities creating protections from general liability) is if a person is using the LLC's assets as their own. Or if the LLC was created specifically to limit the member from liability of such member's personal dealings.

Here, let me help you discover just exactly how easy this is.

The purpose of the company is to provide vehicles for business entertainment. As part of my (legitimate) real estate business, I took a prospective client out on the boat for some fishing, drove him to the marina in the car, and afterwards we went on a two day camping excursion where we made use of the ATV.

If he can show they have a legitimate business function, he is acting in the best interest of the company.


What is a legitimate business function of a LLC that was formed to just owns a couple of cars and a boat? No court in the country is falling for that shiat.
 
2012-10-10 07:04:37 PM

Rent Party: Civil Discourse:


No one simply "operates as an LLC". The LLC is a creature of statute much like LLPs and Corporations- forming one requires an affirmative election to do so by its owners. A person who establishes an LLC then proceeds to use the assets of that LLC as their personal assets is simply not going to receive the benefit of a liability shield. ...

How is it you think an LLC, or any business, is capitalized? How do you think the assets of the LLC become the LLCs?


To humor you: LLC is an abbreviation for Limited Liability Company, LLP is an abbreviation for Limited Liability Partnership, I capitalized corporation by accident. Assets are transfered to LLCs in a variety of ways. Presume I establish "My Boat, LLC" with me as the sole member, then I have the LLC buy my boat. The LLC maintains no insurance. This is wholly valid and non-fraudulent. Presume then that I use the boat as my personal watercraft, but that my neighbor borrows the boat and it explodes, killing him. His family will sue the LLC, and the court will pierce the liability shield because the LLC was merely an instrumentality or an alter ego.
 
2012-10-10 07:06:20 PM
i'm sure he's rich spiritually. isn't that the whole point??

/vote Republican

3.bp.blogspot.com
 
2012-10-10 07:06:37 PM

xynix: Chaos6980: Should be a bit more specific, i'm getting into the rental homes business... and this seems you have a good grasp on the legalities.

Chaos6980: Should be a bit more specific, i'm getting into the rental homes business... and this seems you have a good grasp on the legalities.

Well first off I'm a software sales guy and not a lawyer. You should find a trusted real estate agent and ask them who they use as counsel and consult with them because laws vary from county to county and especially state to state.

Before you even buy the house you'll want to be represented as an LLC and you'll want to get a large liability policy. Think of it this way.. If you happen to rent to someone who's say, a drug dealer, and they shoot someone on your property you can be sued. It's a no-brainer to protect yourself from these litigious assholes.

I would also highly recommend that you get a general contractors license for your state. This will teach you a lot about the local laws as they pertain to on-site injury as well as property laws and local statutes you'll want to know. This takes time and it's a fairly extensive exam but it will save your ass at some point down the road. Since you'll be dealing with contractors you'll want to be in charge and you'll save the overhead of hiring a GC. You'll also have real skin in the game.

As long as what you do is legal and above board you'll be protected as an individual and your assets will be protected as well. Everything outside that LLC is untouchable. What you can't do is form an LLC for each individual house because a judge will shred that. It also won't protect you from divorce but in many instances will protect you from bankruptcy (assets only, credit will be screwed) so creditors can't go after your individual assets. This is a state by state thing as well though so make sure to ask your lawyer about that.

The good news about the market today is that you can get into good rentals for little money and labor/mats are reall ...


I'm still not sure if your LLC example is sarcastic or not. You created an LLC just to operate a car and a boat. What business of that LLC are you furthering by using the car and the boat?
 
2012-10-10 07:07:24 PM

Moopy Mac:
What is a legitimate business function of a LLC that was formed to just owns a couple of cars and a boat? No court in the country is falling for that shiat.


The LLC owns the boat. The boat is available for leasing. Revenues from those operations are returned to the LLC. The LLC expends cash to maintain the boat. Profits, if any, passed through to the LLC members.

There ya go.
 
2012-10-10 07:09:36 PM

Rent Party: Civil Discourse: Rent Party: Civil Discourse:
Yes, that is actually one of the purposes of an LLC. You just can not be one with the LLC. However, to use the LLC as a liability shield it must look and act like an entity that is economically distinct from yourself. Your boat LLC is not a distinct economic entity for the purposes of equity.

The LLC owns the boat. The boat is available for leasing. Revenues from those operations are returned to the LLC. The LLC expends cash to maintain the boat. Profits, if any, passed through to the LLC members.

How is it not a distinct economic entity?

Ok, that is running a boat rental business. Provided you follow the formalities, you get the shield. If, on the other hand, it is not a boat rental business and that boat is merely your personal boat, you will not be shielded from liability simply because it is an asset of some LLC you set up.

Well there ya go. Like I said, it is really easy for me to demonstrate I'm operating a business and really hard for someone to prove I'm not.

Going back to my original point, that is exactly how the people that set up the system in the first place want it to be. So use it to your advantage when you can.


Right, but when you assert facts that suggest you are running a fully capitalized business rather than using an LLC as a tool to hold personal property, of course it is going to look like a business. The less your LLC looks like a business enterprise separate from your personal property and more like an extension of yourself, the more likely it is that the liability shield offered by business forms is going to fall.
 
2012-10-10 07:13:49 PM

Rent Party: Moopy Mac:
What is a legitimate business function of a LLC that was formed to just owns a couple of cars and a boat? No court in the country is falling for that shiat.

The LLC owns the boat. The boat is available for leasing. Revenues from those operations are returned to the LLC. The LLC expends cash to maintain the boat. Profits, if any, passed through to the LLC members.

There ya go.


Right, but this isn't the scenario at issue. We were talking about people using LLCs as a carrier of personal property, and how simply transferring your home or boat to an LLC is not a way to shield you from liabilities arising from those assets.
 
2012-10-10 07:17:30 PM

Rent Party: Moopy Mac:
What is a legitimate business function of a LLC that was formed to just owns a couple of cars and a boat? No court in the country is falling for that shiat.

The LLC owns the boat. The boat is available for leasing. Revenues from those operations are returned to the LLC. The LLC expends cash to maintain the boat. Profits, if any, passed through to the LLC members.

There ya go.


So you are now manufacturing receipts and records to provide to a court? Now you've committed fraud (both civil and criminal).
 
2012-10-10 07:20:07 PM

Civil Discourse:
Going back to my original point, that is exactly how the people that set up the system in the first place want it to be. So use it to your advantage when you can.

Right, but when you assert facts that suggest you are running a fully capitalized business rather than using an LLC as a tool to hold personal property, of course it is going to look like a business. The less your LLC looks like a business enterprise separate from your personal property and more like an extension of yourself, the more likely it is that the liability shield offered by business forms is going to fall.


There we go. Common ground. :)

I think we can both agree what the criteria are for scamming the system, then, and act according to our needs.
 
2012-10-10 07:21:43 PM

Moopy Mac: Rent Party: Moopy Mac:
What is a legitimate business function of a LLC that was formed to just owns a couple of cars and a boat? No court in the country is falling for that shiat.

The LLC owns the boat. The boat is available for leasing. Revenues from those operations are returned to the LLC. The LLC expends cash to maintain the boat. Profits, if any, passed through to the LLC members.

There ya go.

So you are now manufacturing receipts and records to provide to a court? Now you've committed fraud (both civil and criminal).


I don't have to manufacture anything. That is the business. The business generated no revenue and operated at a loss. Operating a business badly isn't fraud.

There is no requirement for transactions to take place for me to do any of the above.
 
2012-10-10 07:23:54 PM

Civil Discourse:

Right, but this isn't the scenario at issue. We were talking about people using LLCs as a carrier of personal property, and how simply transferring your home or boat to an LLC is not a way to shield you from liabilities arising from those assets.


I haven't suggested that. I have suggested that setting up an arrangement to shield me from liability is a whole lot easier to do than it is to prove that is what I've done. Start LLC then move assets will not pass muster. Start LLC set up business front transfer assets usually will.
 
2012-10-10 07:36:41 PM
Rent Party 2012-10-10 07:21:43 PM


Moopy Mac: Rent Party: Moopy Mac:
What is a legitimate business function of a LLC that was formed to just owns a couple of cars and a boat? No court in the country is falling for that shiat.


The LLC owns the boat. The boat is available for leasing. Revenues from those operations are returned to the LLC. The LLC expends cash to maintain the boat. Profits, if any, passed through to the LLC members.

There ya go.

So you are now manufacturing receipts and records to provide to a court? Now you've committed fraud (both civil and criminal).

I don't have to manufacture anything. That is the business. The business generated no revenue and operated at a loss. Operating a business badly isn't fraud.


Speaking as a layman, my opinion is that your advice is highly sh*tty as well as hazardous.
 
2012-10-10 07:44:03 PM
It sounds as if Xynix would probably be OK on the rental properties (if he observed corporate formalities, kept accounts separate, etc.) but probably not on the boat. Creating a business entity is a good strategy if you mean to operate a business. If you don't mean to operate a business, the fact that it might not be easy for someone else to prove your entity was bogus does not make the bogus entity a good idea. Besides, there are other ways to protect yourself from liability. In the "borrow/ride on my boat" category, having the guest sign a liability waiver accepting the risk makes more sense than the LLC thing.
 
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