Inc/LLC – Risks & Upgrade
Did you know?
- Business Identify Theft is a growing business
- Corporate Veil Loss puts you at risk not only for lawsuits but also dangerous tax audits and denied insurance claims
- Senate and House in Washington DC have pending legislation requiring photo identification of all corporation & LLC owners
As a result, owners of Corporations and LLCs are moving away from these structures. They're upgrading to Business Trusts for many compelling reasons.
You know about personal identity theft. We are now seeing sophisticated thieves moving onto bigger targets. Businesses are richer, more visible online and often include valuable real estate. Bank account balances are higher as well as credit lines. Look up ‘invoice fraud.' The County Recorder readily displays online all property owned by a Corporation or LLC.
One extreme example is an investor with an LLC owner of real estate. Thieves connected property records to the business records. They hacked his password to the Secretary of State. Replaced the manager then borrowed $2,000,000 against the property. Never made a single payment. An absolute nightmare for the real LLC owners. It could happen to anyone.
Many people know about the corporate veil risk with civil lawsuits. Backdating records generally fails with a smart attorney. But it can also land you in big trouble with the tax authorities. Here’s why…during audit they might ask to see corporate records to prove you're in compliance.
Let’s say you prefer the generous C corporation deductions and 21% tax rate. Let us pretend the auditor strips away your veil. Next, they disallow all corporate deductions. Your revenues get recast from corporate to personal. The income tax rate jumps from 21% to a maximum 37% tax rate. Just imagine 10 years of corporate tax returns recalculated to personal rates overnight. This could be a horrible event for you.
What's more expensive than paying taxes?
TIP – taxes, interest, and penalties!
Insurance claims are at risk too. If you have a serious lawsuit against your corporation or LLC, the veil is critical. Insurance companies love premiums and hate claims. If there is a way for them to escape a payout based upon your technical default, it is real.
Privacy you once sought for stockholders or members is fading away. New government regulations underway want photo identification for everyone. This means anyone with a controlling or greater than 25% ownership interest in the corporation or LLC.
Here's the way legislation is currently reads – you either comply, or are subject to criminal penalties and $10,000 fines. Just imagine the nearly 2 million new business formed each year having to provide this personal data. Your state might advocate low reporting, but the feds want to know who you are.
What this means is that you lose privacy by creating an LLC or Corporation. You're effectively telling the online world you have valuable assets.
Meanwhile you must file annual or bi-annual statements of information with the Secretary of State. In California you must pay $800 annually in franchise tax for each organization. You also need a resident agent. Then you get tons of mail from service providers. Your business is sliced and diced every which way on the internet for anyone to see.
What is your alternative?
A Business Trust
It eliminates corporate veil issues, resident agents, and franchise taxes. It’s less expensive and safer. You avoid name conflicts. Best of all its unregistered with the Secretary of State which means it’s private to all outsiders.
Limited liability keeps you safe. It's exempt from government permissions and requirements. A business trust gets an EIN and does business banking. Choose from multiple tax classifications – pass through, partnership and corporation. You get a lower tax audit profile too.
Does your living trust register with the state or pay franchise taxes? No. Do you need permission to create one? No. The same for a business trust. It just has a different purpose. Ever since 1720 in England, investors have used this format to operate a business.
Mutual Funds, Pensions Funds, Social Security often use the business trust structure. They exist in about 80 countries worldwide.
Replace your Corporation or LLC with a Business Trust. Or design a combination. Isolate select assets. Create a nominee for your import export business. Get anonymity for negotiating an important transaction whether buy or sell. A business trust can stand alone or complement your current operations. It is highly flexible and completely anonymous.
These are the many reasons why a Business Trust has regained popularity for those seeking an edge. The fact few people know of them or how to apply is both a handicap and advantage. Upgrade your business organization.