Software Club 210: Light Red/Club_Software_210_Light_Red_Micro_Star_1997.iso/sba/f133.sbe

Text File | 1997-01-01 | 15KB | 306 lines

@285 CHAP ZZ

        ┌───────────────────────────────────────────────┐
        │     PROTECTING YOUR ASSETS FROM CREDITORS     │
        └───────────────────────────────────────────────┘

Starting a new business is almost always a highly risky
proposition, and you should not overlook the grim fact
that, if the business fails, you may be forced into
bankruptcy and could lose everything except what the
bankruptcy laws allow you to keep.  This is one reason why
many small businesses incorporate at the outset, since a
corporation will generally limit your liability to business
creditors to the amount you invest in the corporation, plus
any loans you make to the corporation or any loans to the
corporation from banks or other lenders, which you have
agreed to guarantee.

@IF120xx]NOTE re @NAME (a @ENTITY):
@IF120xx]-----------------------------------------------------------
@IF120xx]Accordingly, if you do incorporate, be very cautious before
@IF121xx]PLANNING NOTE FOR YOUR CORPORATION:
@IF121xx]-----------------------------------------------------------
@IF121xx]@NAME is a corporation -- as a result,
@IF121xx]we suggest that you exercise a great deal of caution before
unnecessarily committing too much of your personal net worth
to the business.  For example, instead of putting a building
or piece of land you own into the corporation, it may be
better (and may save income taxes and, in some states,
property taxes) for you to keep the property in your name
and instead lease it to the corporation.
-----------------------------------------------------------
@CODE: CA

(As an example, in California, transferring real estate to a
corporation will usually be an event that will trigger a
reassessment of the property for property tax purposes under
Proposition 13.  If the Prop 13 value before the transfer
was very low compared to its actual value, such a transfer
could result in a major increase in property taxes, since
Prop 13 allows the local taxing authorities to reassess real
estate at current value whenever there is a "change of
ownership," such as a transfer to a corporation.)
@CODE:OF

An alternative to incorporating, in all but 2 states, Hawaii
and Vermont, is to organize your business (if there are 2 or
more owners) as a "limited liability company." An LLC is a
business entity similar to a partnership, but it provides
its owners limited liability, generally to the same extent
as a corporation.

PLANNING NOTE FOR @NAME:
------------------------------------------------------------
@IF120xx]Be aware that, even if you incorporate, the leases or bank
@IF121xx]Be aware that although you are incorporated, leases or bank
loans that you may have to guarantee on behalf of the
corporation could still wipe out your personal savings if
the business "bellies up," and you have to make good on
the guarantees to the landlord or the bank.
------------------------------------------------------------

Thus, it often makes sense to have your corporation set up
a tax-qualified pension or profit sharing plan and to have
it contribute as much as possible to the plan on your
behalf.  Not only does this provide substantial tax savings
and deferral, but federal law (and in many cases, state law
as well) will protect your account under such a plan from
your creditors or the corporation's creditors -- except, of
course, from your spouse in a divorce, or, in some instances,
from the IRS, if you owe money to the Infernal Revenue
Service.

Then if, over a period of years, you are able to build up a
significant retirement fund in your company's pension or
profit sharing plan, you can rest reasonably assured that
the failure of the business or a disastrous lawsuit will
not touch that nest egg, with regard to most types of
creditors.

If you are going into a particularly risky kind of business,
and "betting the ranch" on it, it may be a very good idea
to spend a few hundred dollars up front, consulting a
bankruptcy lawyer, who can outline to you what types of
assets you will be able retain if the worst case scenario
unfolds, and you do have to file for bankruptcy.  Most
states provide that varying amounts of assets, such as a
certain amount of equity in your home, a car of a certain
value, life insurance or annuity policies, tools of your
trade, and sometimes a number of other specified assets,
may be retained by you if you go through bankruptcy.  You
will want to know up front what your state's laws are on
such matters so you can structure your affairs so that you
take full advantage of any such bankruptcy "loopholes" if
worse comes to worst.  Also, if you don't wait until things
are already looking shaky, you may often be able to protect
yourself from creditors by putting a large part of your
personal assets in your spouse's name, as a gift (if you
have a strong marriage and feel you can trust your spouse
not to take the money and run off with the local tennis
pro).  A good bankruptcy attorney can also counsel you on
whether such a spousal transfer can be made workable (i.e.,
non-fraudulent) -- if you are a trusting soul.

Aside from the risks of owning a business, many people are
also becoming increasingly concerned about protecting their
savings from the long-term debasement of the value of the
U.S. currency, thanks to periodic bouts of inflation, and
the "twin towers":  a towering, ever-growing federal budget
deficit and a massive trade deficit, which have, in recent
years, led to a major decline in the value of the U.S.
dollar vs. the currencies of other important industrialized
countries, such as Japan, Germany, Switzerland and several
other major European countries.

OFFICIAL inflation rates are relatively low as of this
writing, in 1996.  (But do you know of anything, other than
your income, that has been going up in price by only 3% or
so in recent years?  Like taxes, or government spending?)
For example, energy prices for things like heating oil have
jumped about 20% in the first few months of 1996, but the
"official" government figures only showed about a 2% rise
in such items.  (Don't try calling your heating oil supplier
and asking why your cost of heating oil went up 20%, while
the government says heating oil only went up by 2% -- your
supplier will probably tell you to buy your heating oil
from the government, if you don't like the price increase.)

The Federal Reserve appears to be pumping huge amounts of
new money into the financial system, trying to revive a
still rather weak economy, prior to the 1996 elections.
Meanwhile, deficits continue and the national debt continues
to grow, like a spreading oil slick.

If past history is any guide, this massive pump-priming
may help stimulate the economy in the short run, but in 18
to 24 months down the road, there is a very good probability
that it will reignite the fires of inflation.  Commodity
prices are showing increases almost across the board, with
some experts predicting that, with increasing demand from
rapidly growing middle classes in huge countries like India
and China, commodity prices, especially for foods and grains,
will go "parabolic" by the end of the decade.  Just when we
thought we had finally put a stake through the ugly heart
of the inflation virus, it may come back to bite us, and
not necessarily in the neck.  However, experts have a way
of being wrong much of the time....

If the deteriorating financial condition of the U.S. and
the "American peso" concerns you, you may want to protect
yourself from future restrictions the government may place
on investing in foreign currencies or on investing your
funds abroad, while at the same time investing in a
relatively safe and stable foreign currency.  One good
way to do this may be to put some of your long-term
savings in a Swiss bank, perhaps denominated in Swiss
francs (or in another strong currency, such as the Dutch
guilder, Japanese yen, or the German mark).

Both Switzerland and Germany, in particular, have been
fanatically determined for many years to keep inflation
as low as humanly