Specialty Coffee Retailer is a publication for owners, managers and employees of retail outlets that sell specialty coffee. Its scope includes best sales practices, supplies, business trends and anything else to assist the small coffee retailer.
Issue link: https://read.dmtmag.com/i/35520
Structuring your business properly can reduce vulnerability to lawsuits as well as taxes. BY PAN DEMETRAKAKES A merica has 4 percent of the world’s population, and 96 percent of the world’s lawsuits. G. Kent Mangelson uses that startling statistic as one of the reasons why protection against lawsuits is an imperative for anyone who owns a business. Mangelson is with the American Society Mangelson for Asset Protection, a consulting group that advises businesspeople and others (and their lawyers) on how to protect their business and personal assets against life’s two inevitabilities: death and taxes. Specifi cally, Mangelson and the ASAP teach how to structure assets so that they are protected against: • Lawsuits Income and capital-gains taxes • • In a recent talk at Coff ee Fest San Diego, Mangelson Estate taxes and other probate problems addressed each of these concerns and suggested strategies for dealing with all of them. “It’s really critical that you manage your fi nancial aff airs in such a way that these things all happen, and they all dovetail with each other,” Mangelson says. “Th at’s what total asset protection is.” Lawsuits, he says, are the biggest immediate problem, especially for owners of successful businesses. “People look at any business owner—they don’t know how well you’re doing or how well you’re not doing,” he says. “Th ey just look at you like their personal lottery ticket.” Several legal developments have expanded the potential liability of businesses to the point where, Mangelson says, “you could be wiped out at any time.” He cited one case in Northern California where an employee was sent to a sandwich shop to buy lunch for the offi ce. On the way back, the employee got 38 | July 2011 • www.specialty-coffee.com into a car accident that resulted in another person’s death. Th e business was successfully sued, on the grounds that the employee was acting as its agent at the time of the accident. Th is doctrine is called “vicarious liability.” “I will tell you that I hate that law so bad, because it’s the rape and pillage law of a business owner in America today,” Mangelson says. VULNERABILITY Certain legal ownership frameworks leave businesspeople, and others, especially vulnerable to lawsuits. Some of these are unfortunately common. One of the most common, and worst, is either single or joint ownership. Joint ownership is especially bad, Mangelson says, because it leaves one owner liable for the actions of another, thanks to a 1985 Supreme Court decision. He cited a case where a widow was persuaded, for tax reasons, to add her son’s name to her house’s deed as joint owner. Eventually, the son had tax liability problems, and the IRS ended up seizing the house. As a defense against legal liability, Mangelson recommends limited partnerships (LPs), especially family limited partnerships (FLPs). Th ey have existed since 1916, when they came into being primarily as a defense against the newly instituted federal income tax. But Mangelson’s mentor, an attorney named Jay Mitton, realized that if draſt ed and tailored the right way, they would be a good lawsuit protection device. FLPs have general and limited partners, and the general partner can be either an individual or a corporation. If done right, FLPs off er complete protection for both business and personal assets. “We just married the greatest tax shelter in America with the greatest lawsuit protection device in America,” Mangelson says.