The Snakes Within and the Wolves Without: Asset Protection and “Reverse Limited Liability”

It is a common misconception that an interest held in a limited liability entity affords the investor asset protection with respect to their business interest. This misconception arises from a misunderstanding of the true purpose of limited liability and what dangers it is meant to shield the investor from. In reality, limited liability is meant to protect the investor from trouble arising within the business rather than from without.

Limited liability is a hallmark feature of certain business entities, such as corporations, LLCs, and limited partnerships. Limited liability ensures that the shareholders of a corporation, the members of an LLC, or the limited partners of a limited partnership are not personally liable for the debts and obligations of the business itself. If the business is sued, for example, the judgment creditor would only be able to satisfy the judgment by going after the assets of the business; they would not be able to satisfy the judgment by pursuing the personal assets of those who invested in the business. Each shareholder, member, or limited partner would instead be liable only up to the amount of their investment in the business. Their personal assets would remain secure.

While the limited liability feature of corporations, LLCs, and limited partnerships is great for protecting your personal assets from business debts and obligations, it does nothing to protect your business interests from personal debts and obligations. An effective, well-structured asset protection plan will afford you “reverse limited liability,” isolating your business interests from your personal liabilities. If, heaven forbid, you were ever to be at fault in a car accident and were sued as a result, your business interest would be fair game for the judgment creditor; standard limited liability would do nothing to protect your business interest in this event. “Reverse limited liability” would ensure that any liability incurred by you personally would not jeopardize your various business interests.

An asset protection plan is meant to be your ‘financial fortress;’ its purpose is to afford you comprehensive wealth protection from both internal and external threats. As an analogy, a kingdom may have a domestic security force to root out traitorous rebels or foreign agents, but without the security of protective walls, that kingdom is destined to succumb to even the least threatening of external foes. The Presser Law Firm can help you protect your ‘financial kingdom’ by building your city walls, utilizing reverse limited liability to ensure that your hard-earned wealth is safe from the snakes within and the wolves without.