What is the best way to protect S corporation shares?
Posted on Feb 16, 2015 5:33am PST
It is far more difficult to protect S corporation shares than C corporation
shares. That is one disadvantage to the S corporation. Although C corporation
shares can be protectively titled to limited partnerships, irrevocable
trusts or other entities; these methods are, unfortunately, unavailable
to protect S corporation shares. S corporations cannot be owned by these
entities or the corporation will lose its S corporation election. It is
then far more difficult to lawsuit-proof S corporation shares because
of its ownership restrictions. However, S corporations can be owned by
single-member domestic or international LLCs (which are taxed as disregarded
entities). S corporation shares can also be owned by a sub-trust of an
international asset protection trust – although this arrangement
is more complex. Another option is to title S corporation shares to a
husband and wife as tenants-by-the-entirety if their state T/E laws are
sufficiently protective. Finally, for protection, you may encumber or
pledge your S corporation shares as you would encumber C corporation shares
or any other asset. Again, the method we use in any given case depends
on the circumstances.