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For corporate executives and investors, I encourage them to look past their pursuit of the “upside” of their business (essentially, buying low and selling high), to also carefully protect their “downsides,” both predictable and seemingly out-of-the-blue unexpected liabilities: an employee or tenant or customer personal injury, a class-action lawsuit, a theft of funds resulting in insolvency, or just a change of fortunes in our dynamic economy and regulatory and tariff environment.

In this blog entry, we explore three tips as you are forming and operating your business to cover your downside: (a) good practices, (b) good insurance and (c) a corporate form.  In these two blog entries (here and here), we address how to operate that corporate form to maximize the value of the “corporate veil” protection.

And one of broad strokes in those articles is preventing liability from passing through to shareholders (in corporation) or members (in limited liability companies) personally.  The idea is that liability stays within the corporate form, and personal assets are isolated from rapacious lawyers and plaintiffs.

However, if you as a company owner or investor have all of your eggs in a single “corporate” basket, even if these strategies work, everything in that basket could possibly be lost in that catastrophic lawsuit (outside of or beyond insurance coverages).

This next idea is: Further segregate your assets into separate baskets.

• If you have a manufacturing or service corporation, would it make sense that separate “divisions” of your company have entirely separate corporate forms, so that a catastrophic liability in one operation does not sink the entire ship that you have invested your entire career to build.
• And more commonly, for real estate developers and investors with multiple properties, does it make sense to either make a new LLC for each individual large project, or — if you have many small investment properties — to form separate LLCs to hold and operate smaller baskets of those assets?  Many times it does.
• And certainly for both asset protection purposes and tax purposes, it typically is wise to separate the ownership of an building occupied by the operating company, from the operating company itself.

Plaintiffs’ attorneys seeking a big payday under their lawsuit will still try to avoid these various corporate forms, by piercing the veil of one to seek the personal assets of the company owners (which would include the LLC ownership interest in multiple LLCs), but that step of piercing the veil is extremely difficult.  Segregating separate real estate assets and operating companies into their own LLC or corporation may help you weather the storm of that “out-of-the-blue” unexpected occurrence, legal or financial.

For help with the corporate structure of your assets, contact any of Isaac Heintz (513.943.6654), Eli Krafte-Jacobs (513.797.2853), Casey Jones (513.943.5673) or Ashley Duckworth (513.797.2864).