The answer is to protectively title your corporate shares to a limited
partnership or some other entity. But you have other tactics available
that can reduce the value of your corporate shares to a creditor. For
example, you may 1) issue irrevocable proxies which assign your right
to vote your shares. If you issue a proxy to a relative, for example,
a creditor who seizes your shares can’t vote your shares since you
have irrevocably assigned your voting rights to your proxy holder. If
the creditor gains no voting rights, it significantly lessens the stock’s
value to the creditor (depending upon the importance of voting control).
You can also sometimes exchange voting shares for non-voting shares, which
similarly lessens the stock’s value. 2) You may also allow the corporation
to assess your shares. Corporate shares assessable by the corporation
are unattractive to a creditor because the creditor assumes the assessment.
A potentially large assessment by the corporation correspondingly lowers
the shares value to your creditors. 3) Another possibility is to dilute
your stock ownership. Why allow your creditor to control your family business?
You can sell additional shares to other family members, or to family controlled
entities (trusts, limited partnerships, etc.) to prevent your creditor
from gaining control over the corporation. Or you may redeem your shares.
As another example, you may title your shares to an irrevocable trust.
Finally, you may pledge your shares as collateral for loans. Of course,
you can use these tactics in any combination. What is the best way to
protect, redeem, transfer or encumber your shares, will, of course, depend
on the corporate restrictions and your personal situation.