Litigation Proof? How the Right Business Structure Can Save Your Hide

Making your company litigation-proof is like trying to make a house tornado-proof. There's a lot you can do, but there's always going to be some vulnerability there.

Business owners and investors might as well think of lawsuits as a force of nature. You can't predict them, and you can barely protect yourself from one. This is even more true once the lawsuit has been filed. These life-ruining events pick up momentum from the beginning, just like a tornado.

The reality is you will be sued as long as the conditions are right. The only thing preventing a lawsuit is the correct set of circumstances.

Don’t assume probability will save you. One in four Americans are sued in their lifetimes. Business owners and investors are even more likely than a regular Joe to be sued. It could easily happen to you!

Remember, lawsuits are like nature: they're inevitable. It's a question of when, not if, they will happen or not.

Litigation Proof: Tornado

Why Do Lawsuits Happen?

There are three conditions that make a lawsuit extremely likely. If all three are active at the same time, then a lawsuit is almost guaranteed to happen.

  • Legal Precedent. The first question someone who wants to sue you must answer is whether they have a reasonable position based on law. What is the likelihood that the courts will approve their reason for suing you? Is there a relevant precedent (prior reason to believe their lawsuit will succeed)?  If there is, you can bet the plaintiff's legal team will be happy to consider bringing a case against you in court.
  • Factual Grounds. Over the years I've come to realize a lawsuit usually takes place because of some type of disagreement or unfortunate event. It is usually not malice or greed. Unfortunately, these things tend to happen randomly. It’s hard to foresee every potential risk. Once triggered, the only question is whether the plaintiff (the person suing you) has enough evidence to stand a chance of winning the case.
  • Recovery Value, The final element to consider is how much wealth is involved. Nobody sues homeless people because there is nothing to gain from them. The plaintiff's legal team will research you and your assets to determine the value of the case. As soon as the equation becomes net positive they'll be ready to sue you.

How To Make Your Company Litigation Proof

While there is no way to make your company immune to a lawsuit, you can definitely lower the probability of one taking place. A good asset protection plan addresses each of the conditions/steps I mentioned above. The goal is to stop, prevent, or make it extremely difficult for a plaintiff's legal team to go through each step.

So how do you make it difficult for them to go through each step? The solution is simple.

Spread out your company assets with a series LLC.

Limited Liability Companies (LLCs) prevent someone from suing you personally. You can learn how to start an LLC here. However, storing all your assets in one place is still a risky strategy. What you want to do is spread your holdings across multiple business entities. This will reduce your exposure and make it difficult for someone to determine your net worth.


Last Updated: 
August 12, 2017

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

Learn How To Achieve Total Asset Protection While Growing Your Professional Network

Ready to know more than your attorney? Join our community platform where you'll get immediate FREE access to all our best educational resources for real estate investors. Including 8 Masterclasses, group mentoring replays, and much, much more.



Join thousands of real estate investors in all 50 states as they enjoy exclusive content, special promotions, and behind-the-scenes access to me and my guests. No spam, ever. Just great stuff!




Do you have asset protection questions? We can help!


© 2023 - Royal Legal Solutions