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CalAttorney2
CalAttorney2, Attorney
Category: Business Law
Satisfied Customers: 10237
Experience:  I am a businesses law attorney, with experience advising and representing owners and investors.
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I create and sell weight loss products online, so the

Customer Question

I create and sell weight loss products online, so the business is quite risky due to FTC regulations. I was told that I should create a corporation instead of an LLC to better protect myself and separate each product that I create into its separate LLC
which the corporation owns, which I am the owner of. Is this a good method? Also is there any benefits legally if there were to be a lawsuit if I was the sole owner of the corporation or if I added other members like my parents to it? Would that decrease the
liability at all because I can easily add my parents and they are trustworthy. Could the government then go after my parents assets as well if I do this? It seems to be a good way to make the business stronger, but in turn also riskier if they are able to
penetrate the business and go after all personal assets of each member.
Submitted: 1 year ago.
Category: Business Law
Expert:  CalAttorney2 replied 1 year ago.

Dear Customer,

I believe you have been somewhat misinformed. Both a Corporation and an LLC will give your personal assets "limited liability" protection. And it does not make any difference (from a liability perspective) how many owners (members for an LLC, or shareholders for a corporation) there are for your entity.

However, I do think you should invest in meeting with a local attorney to help you with setting up your business.

As far as which is best (LLC vs. S-Corp.) for tax purposes, you will need to speak with a local tax professional (accountant or tax attorney) as the best after tax return for you will depend on your entire financial portfolio (you need to factor in the offsets for each against your other earnings, liabilities, and assets). The answer is not always the same for everyone.As far as setting up the "tiered"; entities, this is not always necessary.As an abundance of caution, you can do this (it generally makes no difference for your tax purposes, but it can make a difference for liability as I will discuss). If one of your sub-entities were to suffer a loss (for example a negligence claim), the creditor could sue for damages against that entity. However, the other entities would not be liable for that loss, only that one. You see this a lot with property management companies (landlords that own more than one property), they will set up an LLC for each property, then have another LLC as their property manager. This makes sense for that type of entity as these are each individually fairly high value assets (you don't want to lose one due to a loss by the other), and there is a risk of loss (a negligent tenant could easily destroy a home, or a tenant could be injured on one of the properties), you wouldn't want to lose all of the properties due to a single home's loss.As long as the landlord in the above example had a reasonable insurance policy on the homes, there is little likelihood that the "corporate veil"; would be pierced (his business entity would be "adequately capitalized";) and the creditor would be left to collect against the insurance policy and whatever assets belonged to that LLC. The landlord's other LLCs would be permitted to continue doing business.As far as your company(ies) are concerned, you will want to speak with a local attorney for a formal risk evaluation (we can only provide "general legal information") but if the risk of loss is relatively small, and you believe that you have reasonable insurance or assets to cover foreseeable claims, it may be simply too cumbersome and unnecessary to create the tiered entities in the way you have described for your particular business operation. (But this is a business judgment call you must make, and a local attorney is going to be the best resource to provide you with formal advice on this issue).

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