Keep a Low Profile

It has been estimated that over 90% of all lawsuits in the entire world are filed in the United States.  A medium-sized business is typically involved in a lawsuit per year here and larger corporations are compelled to maintain teams of full-time attorneys to defend themselves. At the other end of the scale, an individual proprietor risks everything to engage in business without a corporate structure and even individuals who are not involved in business are at risk if they have any assets attached to their names.  Meanwhile, the law schools keep churning out more attorneys at an increasing rate.

What’s the solution? KEEP A LOW PROFILE. In business and in our personal lives, too, ideally it would be best to never show up at all on the enemy’s “radar”.  In the game of “getcha” it is always better to present a minimal target profile for the “getcha gang” and the best way to accomplish this feat is very often through the use of Nevada corporate shelters.

In some cases it may be possible to shelter assets and income in a single corporation but when success is achieved and that first corporation starts to take on a higher and more vulnerable profile, it’s time for some creative thinking.  The first step should always be to separate assets from potential liability, so if you have an operating business it is good to ensure that it holds no assets of its own. Often the best solution is to have the operating entity lease its equipment from another, unrelated (by ownership) corporation. The next step could be to consider spinning off the existing business’ departments into separate corporations: the marketing department could become a separate marketing company, as an example. Almost all businesses must purchase some goods from outside sources, so why not deal with a friendly supply company, one over which you may exert some control from behind the scenes?

Not only will this approach severely limit the prospects for damage by prospective litigants, it will also, by and large, keep the IRS out of your affairs. Audit rates continue to show (not surprisingly) that the smallest corporations have by far the lowest audit profiles. Corporations with less than $250,000 in assets had an audit rate of just .25% in the year 2003, while the rate for a corporation with $1 million in assets was more than TEN TIMES as high at 2.8% and the rate for the largest corporations skyrockets to more than ten times that figure at 30.51%.

The key to making this work is to treat each corporation as its own separate interest and to ensure that each entity always acts out of its own self-interest.  In so doing you ensure that each corporation has minimal exposure to lawsuits and IRS audits and the aggregate exposure is far, far less than it would be with a single, high-profile corporation.