Consequences of converting to LLC

I,m not claiming that I know it all, others on this site know alot more than me. But I think you create an llc, and lease the trucks you own through it. So when Someone tries too sue you, they can,t clean you out. I could be wrong on this though.

 

If you have 5-6 trucks and are growing you need to LLC or Corp soon. Right now you are wide open to lose everything if a law suit comes your way. Yes you may take a reset and appear to be a brand new company but the protection it offers far outways any negatives.

 

Converting to LLC will protect your personal liability as said.
I'd try and set up a free/cheap consultation with a lawyer and accountant to answer any questions you have and steer you in the best path for your situation

 

There is usually a local lawyer around willing to inc. or set up a llc for you. The going price on this is usually about $600. I have seen some lawyers as high as $1500 to do this for you. I would not think about running my own truck without being an LLC in todays world, the way everyone sues everyone else. You can set up a new business name when you do this, and still run your old business name as (Old Business DBA New Business.) This means when you set up the LLC. you will have a new name but your old business will be D-oing B-usiness A-s the new name or how ever you want to do it. So this way you should still have and be able to show your experience and reputation. Make sure to ask about the DBA (Doing Business As) when you talk to the lawyer.

 

I have been incoporated for 50 years. I would get out of it if I hadn't written so much off over the years (shop, pickup, tools, truck, trailer, equipment, etc) that I would have to pay taxes on for fair market value. There used to be significant tax and legal advantages to being incorporated but not so much anymore. The veil twixt a single truck owner and the coporarion is easily broken. There is much more paperwork involved. I wouldn't advise it today.

 

This question was moved here from the tax forum.

Great question. It's this exact issue that makes LLC's so much better than corporations.

Use Multiple Entities

First of all, whether you use LLC's or corps, you want more than one entity. You don't want all your eggs in one basket.

There's a landmark NY case from the 1930's where a taxi company was structured with every cab in a separate corporation. One of the cabs got in an accident, and the plaintiff's attorneys tried to sue the whole group of corps, saying they were really one company. The judge said, "uh-uh, that's a legitimate way to structure one's affairs, and the owner has a valid business reason for doing it that way." The plaintiffs were left just being able to sue the corp whose only asset was a totaled taxi. The rest of the taxis were protected.

You want your:

• Operations and title to property that might get sued held in one or more entities with very little net worth; and

• Equity (net worth) safely held in one or more other entities that never do anything that would trigger a lawsuit. They just hold intangible interests.

Series LLC's

Some states now allow a structure called a series LLC which accomplishes the same thing as having multiple entities, but you can do it all under one LLC. (Ignore the concerns about it not having a lot of case law. They said that about LLC's when they first came out, too. They'll be upheld.)

Three Different Structures Compared

Let's take a hypothetical situation of an OO driving in an accident that way exceeds the limits of the insurance coverage. Both the company and the driver get sued.

Let's compare what happens with a single entity structure and with multiple entity structures using corporations and LLC's:

• In the single entity structure, both the OO and the entity are exposed to the extent of their net worth. Result: no asset protection.

• In the multiple entity structure using all corps, the operating entity that was set up for asset protection will have little net worth and will be well protected. However, all the assets the OO owns in the other corps are still exposed. The creditors can just take his ownership in them in enforcement of the judgment. Result: no meaningful asset protection.

• Here's where LLC's shine. LLC's have asset protection of its own assets like a corp, but judgment protection for the owner's interest like a partnership. A creditor can't seize somebody's ownership in a properly structured partnership or LLC unless the other partners agree to let them in as partners. (Courts won't force people to be partners who don't want to be partners together.) The OO's partners in his equity holding LLC's will be some other entity he controls that won't let his creditors in. Result: the OO's ownership interest in any equity holding LLC's are protected.

Technically, the creditors can still attach the OO's income from his equity holding LLC's, but there are some great ways around that. For example, there's a way where an LLC can technically declare an income, but not pay it. Now the creditors get taxed on money they don't even get. The structure has a way of bringing creditors to reasonable settlements very quickly.

Protection Against Frivolous Lawsuits

The biggest advantage of this structure is that it will tend to keep away frivolous law suits, such as the kind you might get from disgruntled employees. Since the vast majority of attorneys who take such suits work on a percentage of what they recover (not the size of the judgment) when they see that you have a structure like this in place, they will tend to lose interest in suing you real fast.

Summary

• Use multiple entities for asset protection.

• Your legal title to property and operating entities that are exposed to lawsuits can be either corporations or LLC's. That doesn't matter. (In many states, the filing and annual fees on corps are lower.)

• Your intangible equity holding entities, where you accumulate your wealth, should definitely be LLC's.

I hope this helps.

Best,