Top Trial Lawyer Reveals Critical Mistake Made In Your Business Structure INCREASES Exposure
San Antonio, Texas — In a recent interview, top San Antonio Trial Attorney James Montgomery, was asked about his criticisms that appeared in an article in the American Journal of Business Planning, Critical Error Commonly Made in the Structure of Business Organizations That Increases Lawsuit Liability. Mr. Montgomery , an attorney with thirty years of experience both as a trial attorney and as a business planner, explained that most businesses are organized in a way that increases their lawsuit exposure despite using corporations and partnerships to give limited liability.
Q: How did you get into the field of business planning and what is that? Business planning is a cross between legal and non-legal disciplines in working with businesses to reduce liability, insure for liability exposure, minimize tax liability, and yet posture a company to maximize profit potential and growth. After literally taking apart transactions at the courthouse by analyzing the weak points or strategies, I was approached more and more often to participate in the initial or later structuring of the business.
Q: What are some of the weak points that you would look for? There are a number of areas but quickly, I look at what form was used for the business, what is the relationship between the owners, what is the potential exit strategy, and where are the assets and liabilities located in the overall business structure, among other things.
Q: What do you mean by the form of the business? Business can be sole proprietorships, corporations or limited liability companies, or partnerships that can be general or limited. This is a very complicated area and I have a white paper that compares the various forms.
For what we are talking about though you can think of the sole proprietorship as being an individual doing business with the maximum liability which is almost exactly the same maximum liability as a general partnership. You are as exposed as you can get if you are using those. I would not recommend sticking your neck out like that.
The classic way lawyers limit liability for their clients is to pick a form of structure that the law makes limited exposure. The stockholders of a corporation are not personally liable for corporation debts and acts normally. The members of a limited liability corporation have similar limited liability. The limited partners are not liable normally for limited partnership debts and liabilities but the general partner is fully liable. Thus, the general partner is usually a shell corporation or what I call “an empty basket”. If sued, there are no eggs in the basket for the foxy trial lawyer to get.
Q: Well, if these companies and all have limited liability, how is it that they can actually increase exposure? The classic mistake made in planning by many businessmen, and many lawyers, is not planning for the financial structure of the business. Where are the assets and liabilities in the overall structure of the business?
Let me give you an example that should just scare the devil out of some owners. It is a real example but the names and facts have been changed just a bit to protect confidences.
One morning, an hourly truck driver hooks up his tractor trailer rig and drives out of the truck yard. In the course of driving on the highway, he or she will pass you and me in our cars on the way to work. The truck will also pass school buses, vans, and regular buses in the course of the day. While truck drivers are trained professionals, they are also hourly employees and like all of us, they can have momentary distractions. They are also operating machinery that just flat cannot stop on a dime so even if they are doing everything perfect, someone else’s actions can put the truck in a precarious position.
On this particular morning, while going 60 miles an hour which was actually below the speed limit, a car swerves in and out of traffic from behind the truck. When the swerver reaches the truck, he cuts in front of the truck which slams on its breaks. The swerver keeps on merrily down the road but the truck is caught in its own circumstances. The driver fights the vehicle but loses control. The van swerves into a bus which leaves the roadway. In the crash that follows, four other cars are involved including a small compact which is carrying the owner of a business to work. To keep the story short, there are two deaths, including the business owner, and two people who are critically injured.
Fast forward two years later. The trucking company has been sued along with the driver. The driver of course has no assets of his own. The trucking company, which technically not “at fault” is not likely to fare well if the case is tried at the courthouse. The trial lawyer representing the business owner is demanding over a million dollars alone just for the death of the business owner and there are other people who have large claims. The trucking company is owned by a responsible family that had purchased not only the minimum insurance required by law but also increased limits. Nevertheless, the severity of this accident is resulting in damages that will exceed the limits of their insurance policy.
Let’s talk about what that means for a second. If the total damages are $4,000,000 as claimed and the insurance policy allows $2,000,000 in total coverage for the accident, then there is potentially $2,000,000 for which the trucking company owners do not have insurance.
Well, the owners themselves do not have to worry because they have limited liability. They normally cannot be held personally liable for more money. Their investment in the company is totally at risk but not their other assets.
The company itself though is fully liable for the whole $2,000,000 that is uninsured. To make matters worse, the insurance company provides the defense to the lawsuit. In this situation, the insurance company does its duty but decides that it is best to pay or tender the policy limits of $2,000,000 into the registry of the court. The issue then is not whether it is owed but which plaintiff gets how much.
But that action can be devastating for the trucking company because when the money is tendered, the duty to defend is over. The trucking company then has to hire its own lawyer to defend against the amount that is uninsured. Furthermore, the trucking company may end up having to write a check for the damages over the $2,000,000 already “paid” by the insurance company. Not a good situation for the trucking company or its stockholder owners.
So the trucking company owner turns to his corporate lawyer and says, I thought we had limited liability?. The lawyer replies you do but the company is fully liable for the acts of the truck and the driver. Pressing further, the owner says but we can’t write a check for that, we’ll be out of business. The lawyer just shrugs.
Q: Is this where you tell us where they went wrong? Sure, the company has a full basket. Its eggs are all in one basket. The company is not a shell. It owns real estate. It has cash in the bank. It owns other businesses. The operating company had all the eggs. Your operating company should never own anything. Bad planning.
Q: How about for profit and taxation? A structure like that is probably also structured to maximize its tax liability. It is the hardest structure to be able to lower tax brackets because there is only one level. Further, getting profits out of the company to the shareholders can be difficult. Perhaps just as critical, a lender would not offer the largest available loans or the best rates because of exactly what we described above, maximum liability.
Mr. Montgomery has been involved in multi-million dollar litigation. His practice now focuses on the structuring of business entities and transactions to reduce potential liability and potential taxation, while maximizing the potential for profit. http://www.jamesmontgomerylaw.com
Forcing Cyber Law Controls On An Unwilling Public
Some Cyber Laws pertain to the communication devices such as cellular telephones and the areas of the Internet that allow people to talk openly about any topic. It is becoming increasingly difficult for Americans to feel comfortable with expressing their opinions while in Internet chat rooms. The Government is aimed on forcing Cyber Law controls on an unwilling public in an environment that is not controllable.
Communist countries have a better foothold on governing and controlling Internet use by their population because they are Communists. Americans have various rights that are assured by Law, and when the American Government begins forcing Cyber Law controls on an unwilling public in an area such as the Internet, that spans the globe, the control factor becomes very similar to that level of control that is found in a Communist society.
Americans have a real problem with anyone who wants to control them. The freedoms we enjoy everyday have given us the right to learn from information on the Internet and earn an income from the research that is done. Monitoring the places that we go is forcing Cyber Laws controls on an unwilling Public who expects their privacy. Many people choose to access the Internet from home, and the monitoring of our Internet activities could be construed as a home invasion and a violation of our right to privacy.
The Government feels that it is losing income from the various business enterprises that are conducted through the Internet. There are no lines drawn to give tax benefits to a particular State, or to afford the Federal government the right to claim their Federal taxes on such work. By forcing Cyber Law control on an unwilling public who pays taxes on the services that they use to connect to the Internet, the Government could be considered to be guilty of double dipping if they ever get to the point where they could get paid taxes for work that is done through Internet contacts.
The law enforcement community uses the Internet to track predators and illegal activities. They are just as guilty of using the Internet for gain as the next person, but the gain they achieve is in removing predators that make the Internet their home away home and not from gaining income that the Federal government can not tax. Internet users have no problem with the efforts being done to make the Internet a safe environment for all age groups. They just do not want anyone to gain control over the way they use the Internet.
James Brown writes about http://www.onlinepromotioncodes.com
Filters That Enforce Cyber Law Regulations
There are filters in place that control how you use the internet and many people are not aware that they are there. The filters that enforce Cyber Law regulations may not be regulated by any specific law that is written in stone, but the assumption of covering laws on the books in many States is good enough reasons for the filters to be authorized.
Some of the statutes in place in many States are transferred over to cover the vast realm of networked computers across the country that make up the Internet. It is safe to assume that any action performed on the Internet that breaks the laws of a State would deserve to be filtered and some people would be grateful for the barrier of protection that the filter provides. The filters that enforce Cyber Law regulations would certainly focus around child pornography.
Some of these filters that enforce Cyber Law regulations might record the routes that people take to meet with other Cyber predators in any online environment. The filters could provide a direct route that law enforcement officers can follow to find all perpetrators involved with any illegal activity online. Privacy is not assured on the internet and these filters ensure that privacies are violated in the right manner.
Since gambling is illegal in the United States, there are filters that enforce Cyber Law that points to people who choose to work their way around the maze of the Internet to enjoy gambling online. These filters can track how gambling sites in other countries allow gamblers in the United States to transfer funds through their sites. The filters may identify which gamblers are underage, or simply the fact that the person is gambling in the United States illegally.
Whenever jurisdictions overlap, the responsibility for installing filters that enforce Cyber Law regulations may fall on several Governments. The local government may lightly filter Internet activities because they are ill equipped for such tasks. The Federal Government, on the other hand, has a multitude of equipment and money at its disposal to use filters and the information gained from those filters to file charges.
The Federal Government would then justify the use of filters that enforce Cyber Law on Federal Laws that are centered on prosecuting illegal events simply because the activities occurred across state lines. Some agencies have made landmark decisions in court by rulings that say a money transfer for illegal activities is a crime because the money paying networks were located in several States. The Federal Government can prosecute because they have a legal leg to stand on since money crossed state lines in the commission of a crime.
James Brown writes about http://www.onlinepromotioncodes.com
Forensic Files Used To Enforce Cyber Law
For every illegal activity that can be associated with a computer, there is a good chance that there are people who have created forensic files used to enforce a Cyber Law that will stop that illegal activity from occurring. Some of the forensic files are shareware and freeware versions so there is ample opportunity for everyone to protect their home computer system from predators.
Most of the forensic files used to enforce Cyber Law community use of the Internet are offered in a very organized manner that allow computer users to differentiate the correct files to download for a specific operating system that they have on their personal computer. Most operating system formats are covered and if Windows versions XP, NT, 95/98, ME, 3.xx are not right, then try the Unix and Linux offerings.
In an effort to give everybody protection under Cyber Law, the forensic files used to enforce Cyber Law will also help a computer user to keep their computer in tip top operational condition and keep it free from virus, malware, and spyware. The programs for XP for example, will give you access to packet sniffers that will help identify which files on the computer system might have a virus or computer worm attached to them.
Some of the forensic files used to enforce Cyber Law related to the protection of children when they are using the Internet will give parents the opportunity to routinely scan the home computer to identify any photographs that have been saved that have inappropriate images on them. Children learn very quickly how to hide files so that parents can not see what they have been doing while online.
Sometimes it is necessary to protect children even if they do not want it, and when they notice the files are missing because you installed the forensic files used to enforce Cyber Law, this usually gives parents a great opportunity to talk with their children about the predators that are online, and the virus that was attached to the picture that recorded every keystroke they made when they were online.
Some of the forensic files used to enforce Cyber Law will allow people to take an active part in tracking sexual predators in their neighborhood. The forensic mapping software is easy to use and will allow people to create maps that they can mail to their neighborhood without ever having to divulge personal information in the notification. Many states are incorporating laws to better identify where the sexual predators live and have begun marking their driver’s license with a tag to let all law enforcement officers know who they are dealing with during a traffic stop.
James Brown writes about http://www.onlinepromotioncodes.com