Use Multiple Entities

Those who have more than one type of business should use different entities to conduct each facet of the business. The goal is to insulate each separate business from liabilities produced by the other activities.

Physicians operating more than one clinic should never hold ownership in a single entity. Similarly, if you own several real estate properties, use different entities to hold each one. If there is a lawsuit in connection with one of the properties, the others won’t be endangered. The same logic would be applied if you owned properties and also performed property management services for others. You would want to separate the management business from the ownership of the properties.

As a general principle, the ownership of Dangerous Assets, those with a high risk of producing liability, should always be separated from Safe Assets, such as cash or securities. These Safe Assets should not be jeopardized by a liability associated with your business or other Dangerous Assets which you own.

For example, a client of ours owned a restaurant and had substantial retirement savings in the bank. If he was sued because of a liability in connection with the restaurant, his retirement savings could be lost. Instead, merely by putting the restaurant in an LLC, we removed the Dangerous Asset from his legal ownership. Then, any lawsuit against the LLC, which owned the business, would not place his other assets at risk.