LLC, CORPORATION, or Umbrella Insurance?

[RelentlessPursuitRacing]

What are you doing to reduce your liability as a Racer? I started a business (Relentless Pursuit Racing) and plan to be able to write off some expenses of building a racer and racing. I started it as "Sole Proprieter", but am wondering if I should make it a Limited Liability Company or a Corporation (at a cost of about $800/year, or neither and just go out and get an umbrella insurance policy. Any suggestions?

[Yikes]

Future racer opinion: I like the idea of an LLC because it makes it very difficult for someone to come after you personally. I don't know if it applies to a racing business, but if it does it could save your butt. For example: You hit a spectator that got a bit too close to the course and he decides to sue you to pay for his doctor's bills.......and suffering, missed work, mental turmoil, whatever. I honestly don't know how you're covered as a racer, but if applicable, the LLC could certainly protect your personal assets.

[roach]

LLC, all the way.

[RelentlessPursuitRacing]

I talked with my tax guy today and he suggested a LLC, corporation, umbrella insurance....in that order and maybe both LLC and an umbrella policy because an umbrella policy may not be enough in itself. I think the LLC may cost me about $800 a year. I talked to my insurance guy (State Farm) and they said $200 a year for a $1,000,000 umbrella policy.....BUT warned me that it would NOT pay out anything if an incident involves racing!.....He suggested talking to an insurance broker to find a company that will cover while racing. I will be researching further next week into that and an LLC. I really don't want to spend the money on that, but can't take a chance of losing my house, retirement, 401K, cars.........

[Blanco]

All this might be good prep for US law but I'm not sure what difference it would make in Baja? :confused:

[RelentlessPursuitRacing]

All this might be good prep for US law but I'm not sure what difference it would make in Baja? :confused: Baja is only one portion of all this racing thing. Probably won't do anything in Baja. Just get your ass back across the border somehow! ....but we still have PRIMM, Laughlin, BITD, Vorra......and how about just testing and such. Not a chance I am willing to risk. If you dont own a home or any substantial savings or other assets it may not be a big deal.

[locopny]

. Not a chance I am willing to risk. If you dont own a home or any substantial savings or other assets it may not be a big deal.

by the time one is done building a racer...I'd say there is a substantial asset..meaning sure hate to lose one like that.

[RelentlessPursuitRacing]

by the time one is done building a racer...I'd say there is a substantial asset..meaning sure hate to lose one like that.

Loco, I believe that even as an LLC or corporation, you can lose everything affiliated witht he business, but they can't touch your personal assets. Not sure how exactly (if even possible) to insure the race truck itself.

[fj40]

All this might be good prep for US law but I'm not sure what difference it would make in Baja? :confused:

One of the things there is to like about racing SCORE in Baja is the insurance, you are covered in so many ways, not only medical, just follow the news or forums on resent spectator hits, SCORE handles them as race incidents an as a racer you have the promoters and insurance company support if an spectator invades the course.... ( this gives me the Willy's).
Now, if only there was a way to insure your chase crew....

[Dave G]

While a Limited Liability Corporation is a great way to go, when it comes to using one, there are certain steps that must be taken, records that must be kept current, and a long list of things that CANNOT be done or it makes it all completely useless!

Remember this phrase - "piercing the corporate veil" - every action, every purchase, and every expense must be made with consideration whether it could be used to blur the distinction between business and personal! For example, all it takes is one instance of paying for a "company" expense with a personal credit card (or vice-versa) to pierce the corporate veil! Just like popping a balloon, one single very small point will bring the whole thing down! In the event of a lawsuit, all it takes is a diligent attorney going over your records, and if there's any impropriety, game over - they're into your pockets!!

Also, something to keep in mind - In the event of a lawsuit, an LLC with only one member is a HUGE red flag! It will be scrutinized to make sure everything is on the up and up, as opposed to an LLC that has multiple members. (The theory is that a single member is only using it as a liability shield, whereas the multiple member LLC is actually benefitting from the operating agreement and corporate protocol, and the liability shield is just a bonus!)

If you're seriously considering forming an LLC, consult an attorney about it, DO NOT take an account's advice on legal matters. Would you have a lawyer do your taxes?

[RelentlessPursuitRacing]

While a Limited Liability Corporation is a great way to go, when it comes to using one, there are certain steps that must be taken, records that must be kept current, and a long list of things that CANNOT be done or it makes it all completely useless!

Remember this phrase - "piercing the corporate veil" - every action, every purchase, and every expense must be made with consideration whether it could be used to blur the distinction between business and personal! For example, all it takes is one instance of paying for a "company" expense with a personal credit card (or vice-versa) to pierce the corporate veil! Just like popping a balloon, one single very small point will bring the whole thing down! In the event of a lawsuit, all it takes is a diligent attorney going over your records, and if there's any impropriety, game over - they're into your pockets!!

Also, something to keep in mind - In the event of a lawsuit, an LLC with only one member is a HUGE red flag! It will be scrutinized to make sure everything is on the up and up, as opposed to an LLC that has multiple members. (The theory is that a single member is only using it as a liability shield, whereas the multiple member LLC is actually benefitting from the operating agreement and corporate protocol, and the liability shield is just a bonus!)

If you're seriously considering forming an LLC, consult an attorney about it, DO NOT take an account's advice on legal matters. Would you have a lawyer do your taxes?

Great info, Dave. So, what the hell do we do to protect ourselves?

Don, what are you doing?

[Dave G]

You're on the right track in looking at an LLC (LLCorporation) , but if you don't do it the right way, it's only good for a bit of false security.

We use LLCs here on the ranch to limit our liability in addition to a general liability policy. All the equipment is owned by an operating corporation separate from the land holdings (in fact, each piece of land is held by a separate LLC) so that if some idiot runs into one of our tractors while on the road, then the most he (or his family depending on how fast he's going!) will get is a couple dozen pieces of machinery and some cancellable land leases!

In your racing LLC, if someone sues and wins, they'll walk away with a race-truck, a few spare parts, and a worthless contract from the LLC showing that you rented the truck for $1 per race!

LLCs are very effective if used correctly and due diligence is paid to the details. If you have any question as to that, open the yellow pages to the "attorney" section, I'll bet you see that 9 out of 10 names there end in LLC!

As much as I dislike attorneys, they're a necessary evil, and it's well worth the money to talk to one for a while to make sure your LLC is done right!