Is it equally wise for liability protection to divide one entity into separate entities?

Of course. It can be smart to divide one corporation or LLC into separate entities. Your objective is to confine the more liability-prone activities to one corporation, and conduct your safer activities and/or title your more valuable assets through another corporation. What’s the core of your business? Where and how is your business most likely to incur liability? How can you separate the two? That’s how you defensively organize. We review our clients’ business organizations. How can we isolate those risky business activities to a separate corporation? How can we restructure their present organization so that one big lawsuit or creditor problem won’t cause total organizational failure?

But be careful. Separate entities can lose their protection if they don’t operate as separate entities. Affiliated companies cannot share bank accounts, commingle cash, inventory or other assets, use one payroll account, combine corporate meetings, or generally operate as one large entity. If one entity goes bankrupt, its creditors can force its affiliates into bankruptcy and claim their combined assets. It’s more cumbersome to run separate businesses, but the effort is vital, particularly in these litigious times.