Q: I've read people should start an entity for asset protection, but do those entities need to generate revenue? if so how?
A: I need to break this down a bit: Yes, it's a good idea to "start an entity for asset protection," but what people typically mean by that is that they wish to protect their personal assets from any liability related to their business venture. Therefore, they form an appropriate entity for the business venture, and assuming they follow the proper rules and protocols, the liability shield afforded to their personal assets is indeed effective. However, your question leaves me a bit unclear about the context in which you need "asset protection," (the begged question/missing variable is, "protection from what?") For example, if there's no business involved, a better vehicle might be to place the assets presumably needing protection into a Trust. So, while I don't think this is the question you're trying to get answered: No, your entity is not required to generate revenue in order to be effective as a liability shield. However, the IRS' general rule is that if your business doesn't show a profit in at least 3 of the past 5 years, it's classified as a "hobby," rather than "business." How the IRS/tax regulations intersect with the State's incorporation/organization scheme is an *extremely* good question...and getting into far deeper waters than I'm prepared to address in this forum.
Justia Ask a Lawyer is a forum for consumers to get answers to basic legal questions. Any information sent through Justia Ask a Lawyer is not secure and is done so on a non-confidential basis only.
The use of this website to ask questions or receive answers does not create an attorney–client relationship between you and Justia, or between you and any attorney who receives your information or responds to your questions, nor is it intended to create such a relationship. Additionally, no responses on this forum constitute legal advice, which must be tailored to the specific circumstances of each case. You should not act upon information provided in Justia Ask a Lawyer without seeking professional counsel from an attorney admitted or authorized to practice in your jurisdiction. Justia assumes no responsibility to any person who relies on information contained on or received through this site and disclaims all liability in respect to such information.
Justia cannot guarantee that the information on this website (including any legal information provided by an attorney through this service) is accurate, complete, or up-to-date. While we intend to make every attempt to keep the information on this site current, the owners of and contributors to this site make no claims, promises or guarantees about the accuracy, completeness or adequacy of the information contained in or linked to from this site.