Cover Your Assets - Why Buying Foreclosures Under a Corporate Name is Smart Business

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One of the most important aspects of the American legal system - and a backbone of American commerce - is that the courts treat corporations much like separate persons. The government offers this opportunity as an incentive to those who want to participate in business endeavors and take full advantage of the special legal and financial perks extended to entrepreneurs and other business-minded citizens. Unfortunately, many conduct business but fail to understand the real purpose of incorporation. They think it is a way to feel more official, to secure a brand name, or to appease banks or investment partners. They miss what is perhaps the main goal of incorporation, namely to put distance between an individual and negative legal and financial consequences.

Because a corporation is treated like an individual person, you can sue a corporation and the buck usually stops there. It is the bulletproof vest of our legal system that affords a powerful buffer of legal protection between us and any potential liabilities that might occur in the course of our doing business. The corporation steps in front of you to take the bullet.

If you are in a business that doesn't involve much liability, you don't need to incorporate. If you are, for example, making your money by working as a landscape-painting artist then chances are that nobody's going to get hurt in the course of that work. But if, on the other hand, you're painting houses for a living your employee could fall off a ladder and sue you for medical expenses. Or you could drop a bucket of paint on a homeowner's pricey Lexus and get sued for the cost of a new car. In that case you'd be wise to incorporate.

Similarly, if you're buying a normal home through a Realtor, you probably don't need to worry about incorporation. The Realtor accepts most of the legal liability. But if you're buying a foreclosure home on your own you might be walking into a legal hornet's nest. A previous owner may have failed to pay the IRS or a contractor and if you take title to the house you become legally responsible for those debts - even if they are worth more than the house. There could be hazardous waste in the ground, and as the owner you are responsible for paying to remove it - or paying people who got sick in the neighborhood because of it. All sorts of potential liabilities can cloud the ownership title to a piece of real estate. Paying them off can bankrupt you.

To ensure that those problems don't reach into your personal life - and your personal assets - it is important to incorporate your investment business and buy homes in the business name, not your personal name. Incorporation is not necessarily difficult or expensive, but not incorporating - even when you are buying small price tag properties - carries the potential of being financially catastrophic.

Hire an attorney, set up a corporate entity to buy and sell property, and then enjoy the reassurance and peace of mind that comes from savvy business foresight.

About the Author: John Krajewski

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This page contains a single entry by the boozwatt team published on May 30, 2008 2:45 PM.

The Truth About Loss Mitigation, Short Sales and Foreclosure was the previous entry on boozwatt.com.

Top 10 Things You Must Know Before Attending Government Tax Foreclosure Sales is the next entry on boozwatt.com.

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