DAVID J. WILLIS ATTORNEY
Copyright © 2013. All rights reserved worldwide.
THE SHELF COMPANY ADVANTAGE
By David J. Willis, J.D., LL.M.
A "shelf company" is an existing legal entity for sale and assignment to a new owner. In the case of our firm, the shelf companies we offer are unused Texas or Nevada Series LLC´s with premium asset protection features – plus an EIN, an assumed name certificate filed with the county clerk, and a bank account with checks printed in the assumed name. These companies are ready to do business. If the entity is one of our proprietary "anonymity companies" ("AC´s" – our term) then additional benefits are achieved by the naming of a trust as the initial manager (with a POB address). In an AC, this firm acts as organizer and registered agent, thereby keeping the client´s name entirely off the public formation documents. The trust agreement that makes this possible is complex and is our own innovation.
You can expect that fees and costs relating to our shelf companies will be substantially higher than those associated with LLC´s formed from scratch. Bargain hunters may wish to stop reading here.
Advantages of a Shelf Company
What are the advantages of a shelf company formed by this firm?
1. immediate delivery of first-class company materials and documents that contain state-of-the-art asset protection provisions in the new Series LLC format;
Our Texas and Nevada shelf companies represent a unique opportunity for the selective investor or businessperson. We are unaware of any Texas law firm that offers anything comparable.
2. immediate company operational capability under an assumed name, including the ability to make deals, write checks, and enter into contracts;
3. relief from the time-consuming, required follow-up tasks inevitably involved in moving from Secretary of State approval to actual business readiness;
4. anonymity, if the company is one of our AC´s.
Why are our shelf companies formed as Series LLC´s?
A Series LLC offers unparalleled flexibility, simplicity, and economy for any investor or businessperson with multiple properties or enterprises. It allows an investor to hold assets and liabilities within separate compartments or "series" which effectively operate as sub-companies. The Texas Series LLC or Nevada Series LLC shares characteristics with the traditional LLC, including the benefit of informal management, an effective liability shield, and pass-through taxation; but the Series LLC also has the ability to segregate assets and insulate them from liability arising from other assets within the same company. How does this differ from a traditional LLC? In the case of a judgment against a traditional LLC, all assets of the LLC are exposed for purposes of satisfying that judgment. Not so with a Series LLC.
The Series LLC is particularly effective when used as part of this firm´s recommended two-company structure – i.e., one LLC which operates as a shell management company that deals with tenants, vendors, contractors, and the rest of the public (and therefore risks lawsuits); and the other a stand-alone "holding company" that owns the hard assets and stays quietly in the background. Our real-world courtroom experience indicates that the holding company in this structure – which has legal privity with no one – is nearly impossible to successfully sue.
Lawyers are frequently asked by clients "How many LLC´s do I need, and how many properties can I safely hold in one LLC?" The Texas Series LLC or Nevada Series LLC eliminates these issues for most clients, particularly when used as part of the two-company structure. For more detail on series companies, read our article LLC´s in Texas – The Series LLC.
Asset Protection Generally
Although there is no such thing as a "bulletproof" plan to avoid personal liability or protect assets, you can get close. The Series LLC is an important step in getting there, particularly when used as part of the two-company structure advocated by this firm.
A basic principle of asset protection is this: the more fences a plaintiff and his attorney have to jump, and the more money they have to spend in order to get to you personally, the better protected you are. One way or another, plaintiffs have to pay their lawyers, and that means either cash or contingent fee – and few good lawyers will take a real estate fraud case on a contingent fee, particularly if they know they will have to penetrate a bona fide LLC before they can get to any real assets.
Separating Assets from Activities: The Two-Company Structure
Our recommended asset protection structure involves two LLC´s – a management company and a holding company – and, as a supplementary step, a living trust for the homestead. The fact that the holding company exists quietly in the background (either in Texas or Nevada) and does not usually enter into contracts or business dealings makes it nearly impossible to sue successfully (the reason is the legal doctrine of "privity"). Few investors or business persons need anything more complex. While asset protection lawyers are certainly capable of developing more exotic structures, our preference is to keep matters simple whenever possible.
Our suggested asset protection plan for Texans is the following:
(1) establish a Texas Series LLC or Nevada LLC for holding investment properties and businesses (the
(2) separate assets from activities by forming a shell management company based in Texas for dealings with
tenants, vendors, and the public (this can be a useful role for a traditional LLC or corporation if the client
already has one and wants to use it);
(3) file assumed name certificates (DBA´s) at the county level for both the holding company and for the
(4) transfer properties held in personal names to specific series of the holding company;
(5) reduce debt on the homestead, personal vehicles, and other exempt items to maximize Texas homestead
protections (See our article Homestead Protections in Texas
(6) form a living (inter vivos) trust for the homestead to avoid probate and achieve a measure of anonymity,
then do a "pour over" will to accompany the trust (this will "pours" remaining assets into the trust in event of
your death). More information is available in our article Living Trusts in Texas
Of course, this two-company structure does not fit everyone. There may be good reasons to vary or customize this model from case to case. For more details on asset protection, read our companion article Asset Protection in Texas. If you read no other article of ours, read this one.
We recommend that you consult a qualified asset protection specialist who will tailor his or her legal advice and documents to your individual circumstances and investment plan. Steer clear of internet services who offer only minimalist documents and whose knowledge of asset protection is, at best, limited – particularly when it comes to the fine points of Texas law. This office considers most "seminar" and "guru" forms to be toxic waste. If asset protection is worth doing, it is worth doing correctly with the guidance of a seasoned professional.
Consult our website to determine our available inventory of shelf companies.
Information in this article is proved for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well. Although we will respect your confidentiality, this firm does not represent you unless and until it is retained and agrees in writing to do so.
THIS DOCUMENT IS NOT INTENDED TO BE USED, NOR CAN IT BE RELIED UPON, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES IMPOSED UNDER UNITED STATE FEDERAL TAX LAWS. THIS DOCUMENT DOES NOT CONSTITUTE DOES NOT CONSTITUTE A TAX OPINION OR OTHER ADVICE TO WHICH CIRCULAR 230 IS RELATED.