LLCs versus Corps
Corporations are a heavily marketed entity in the
world of
asset protection.
Nevada corporations in particular are
promoted
because of their ability to be
owned with complete privacy by using nominees. It is
true that corporations can
be useful as an asset protection tool, and they were
a good way to go in the
80's and early 90's. If they were the best thing to
use today, then PF Shield
would use them also. But they are not the best thing
out there, at least for asset
protection purposes, and these are the reasons why.
- Although there is no corporate tax in
Nevada, in some instances your
Nevada corporation may be liable for a tax in your
home state that an
LLC would
not be liable for.
- In some instances (especially where liens
or lease agreements are
considered), putting money into a corporation may
make that corporation liable
for a tax, even though you have not generated a
profit for yourself. This is not
the case with an LLC that benefits from
pass-through
taxation.
- Corporations can have the corporate veil
pierced (i.e. be stripped of
their
liability protection features) if they are
under-capitalized (meaning they didn’t have enough assets put into them.) This is not the
case with an LLC.
- Corporations are generally required to
hold
annual board meetings,
keep corporate minutes, etc. Failure to do so may
make the corporation more
vulnerable to an
alter-ego ruling, which also may
pierce the corporate veil.
- Corporations are vulnerable to lawsuits
against a stockholder who is
sued for something unrelated to the corporation’s
business activities. If John has
51% stock in a corporation, for example, and he gets
in a car accident, and is
sued, and a $2 million judgment is awarded against
him, then a judge can order him to surrender his stock in order to satisfy
the judgment. Since the
lawsuit’s plaintiff now has 51% ownership of the
company, the plaintiff can
liquidate the company’s assets in order to get his
$2 million. An LLC does not
have this same weakness. As far as LLCs are
concerned, in most instances a
judge is limited to “charging orders”, which means
he can only allow a creditor to
receive distributions from an LLC. The creditor is
generally not entitled to the
assets of the LLC, or to a membership interest in
the LLC itself. See the
Anonymous LLCs/COPEs
section of this website for more information
regarding
charging orders.
- A New Mexico LLC can have the same level
of private ownership that a
Nevada corporation has. You can use a nominee member
to own the LLC, or
you can use 2nd anonymous LLC as the member of the
LLC. An anonymous
LLC may be even more private than a Nevada
corporation, since it can be set
up so as to never be required to file any return
with the IRS. This is not the case
with a Nevada corporation, or any corporation, for
that matter.
Although corporations are not the entity of choice
for an asset protection
scenario, there are reasons for choosing a
corporation over an LLC. For
example, someone may wish to form a large company
where ownership of stock
could quickly and easily change hands. Perhaps this
individual also wants a
company that would be able to rapidly gather venture
capital through the sale of
this stock. A "C" Corporation is ideal for meeting
this person's needs. If this
person is smart, however, he/she would likely make
the "C" Corporation a holding
company for several subsidiary LLCs, in order to
encapsulate liability and
provide the extra liability protection that the C
corporation lacks.
Highly detailed comprehensive
comparisons of
Oklahoma LLCs versus Nevada
Corporations or New Mexico LLCs versus Nevada
Corporations
