A good asset protection plan often puts dangerous assets in one or more limited liability companies ("LLC"). There should be a separate LLC for each dangerous asset to insulate your other assets from liability arising from this dangerous asset. By insulating the asset with its own LLC, only this asset will be at risk if a judgment arises against the LLC. A judgment against any of the members will result in a charging order only against any distributions to be made to the member. In other words, a judgment against you will not affect the asset in the LLC.
One of the greatest advantages of the LLC is that it is an extremely effective liability shield (for which you pay a $800 yearly Franchise tax deposit in California), yet is able to operate as a sole proprietorship or partnership with income passing through to its members in lieu of corporate taxation. In California there is also a fee- based on gross income due after income exceeds $250,000.
Each state has unique laws that pertain to LLCs. In California, many restrictions apply to who can and cannot operate as an LLC and how many members are required. An LLC can be operated as a pass-through entity or a corporation depending upon the choices it makes and the way it operates.
Contact Collins Law Corporation to discuss your entity formation options and protect personal assets today.