“How do I avoid being sued?”

While at my favorite Italian restaurant last week, I was asked “how do I avoid being sued?” The short answer: you don’t. Things happen. While it is impossible to prevent lawsuits, you can avoid losses by using sound asset protection strategies.

Consider Sam, who is the managing member of a successful oil and gas company called Sam’s Resources, LLC. Because of the protection afforded by the LLC, Sam believes that his personal assets are safe from lawsuits that arise at work. Baloney!

Successful plaintiffs may get to Sam’s personal assets in three ways. First, he may be sued for his wrongful acts. For example, if Sam allegedly lied to a landowner in order to get a contract signed, then that landowner may sue Sam personally. Second, other members of the Sam’s Resources, LLC may sue Sam over ownership disputes (to avoid this exposure, always create a separate entity to serve as the member). Third, Sam’s personal assets may be reached if a successful plaintiff sues Sam’s Resources, LLC and manages to pierce the LLC’s veil.

How does Sam ensure that a plaintiff does not pierce the veil of Sam’s Resources, LLC? He makes sure that his business has a legitimate purpose (an LLC created to launder drug money provides zero protection), maintains separate bank accounts for business and personal, identifies his status “managing member” with all he does business with, and complies with his LLC’s requirements, which by example means if his LLC’s operating agreement states that any purchase over $25,000 requires sign off by a majority of members, then gets the sign off.

Lawsuits can come at Sam personally and Sam’s Resources, LLC from every angle: from customers, employees, partners, suppliers, contractors, and the government. Sam should find a good insurance man, navigate here for more legal services.

I would advise Sam to call Charles Johnson at Overman Insurance Agency, LLC, (405) 310-2020. Charles understands the ins and outs of business coverage, and frankly I call him several times a week with questions (This is not a paid endorsement of Charles Johnson. Rather, I trust his advice).

What if a plaintiff is successful in bringing suit against Sam’s Resources, LLC? Are there ways to protect the assets of the LLC? Yes, a business-savvy attorney can protect both personal and business assets. Keep in mind, asset protection should be done now. Measures taken after a lawsuit is filed (or in some cases when the filing is imminent) may be disallowed as fraudulent transfers.