Discussion in 'Professional Trading' started by vladiator, Dec 11, 2002.
the assets of the partners ( investors) are safe from litigation.
That's what I thought too. That's also probably what SEE thought before they bought cryovac, or what hal thought, or hon.... My experience is that if there is a pound of flesh available for lawyers, they'll come in and ask for 2, and then be happy to settle for all that you have.
How are you protecting yourself, is insurance more expensive b/c we manage money? I'd appreciate any other comments.
my fund is still very small. i do not believe the insurance spoke about earlier would protect you from the type of allegations that could be brought against you--- deliberate actions would be claimed and issues with the llc structure. glad to see you are doing well !
Here are several scenarios that I came up with. Now I just manage my own money and do not take in clients. So my liability, as with anyone else would result from an accident or something like that either in my car or from someone who is visiting. The apartment/auto/umbrella protect me from any major lawsuits. Of course if I break the law I am SOL.
However, anyone who manages others money has a fiduciary duty to manage it correctly. To some extent this can be covered by taking in accredited investors, signed risk profiles, etc. However, any good attorney could challenge these things and at a minimum be a real pain in the ass. Many directors of public companies cover themselves for this type of liability. So I would assume there is some sort of business insurance available to afford you some protection.
Here is the third scenario, and I checked my liability policy, I am not covered if I am doing business. Only actions of a personal nature are covered. This is were you may be exposed if you work from your house like many traders do.
For instance, if you have a client in your home office, and they slip and fall on a prospectus. Your homeowners coverage may not cover this since it occurred doing business. In which case either your personal assets or business assets would be at risk.
Far fetched perhaps, but easy money has made many people do crazy things.
I'm always scared when it comes to liability.
Did MCD ever think that someone would sue them for making them fat?
In the past 30 years, has anyone not thought that smoking would kill them? The side of the pack says "this product will kill you!" yet MO gets sued almost hourly.
My father, an oral surgeon, was sued because he left a "miniscule" scar on the roof of a patient's mouth. My father argued in court that making a surgical incision would necessarilly lead to a scar. He still lost the case. The jury was convinced that the patient had a career in lipsick and teeth adds and the scar ruined a possibly profitable career.
I think that common sense cannot protect you. If someone thinks that you have money, they'll try to take it. For now, all my partners are friends and family. If I choose to grow my fund, I will eventually have to deal with possible lawsuits. "If you build it, they will come..."
Has anyone here ever been sued while managing money?
I personally told my grandma to sue her broker who lost 80% of her money in the last 2 years. I think that she can get him on gross negligence. She checks her statements every 3 months at most. In 1999 she had mostly stock in F,GE,XOM,FNM,C. A year later, her broker put her into a half dozen dot coms. If I didn't step in, she'd have nothing left b/c every single one went out of business. What does a woman over 80 need high tech growth stocks for?
I couldn't agree more with what you say - we are in an area of no responsibility i.e. no one wants to take any. Secondly further along that track they are looking for the easy buck - vis. McDonalds etc
Brokers think the reverse of this and what happened to your grandma is a classic they try to hide behind this cloak - and I hope that people like her really do win off these leaches - the economy, the markets no one needs these people.
I am not broker bashing - and if brokers reading think so so be it -how about broker if they are legitimate trying to erase the bad ones from within - oh that would be too much responsibilty - oops.
By the way how does the roof of your mouth be seen from outside - that is a disastrous decision I am sure your dad is still fuming!
I know we are off track here my one word of adice being in a litigious society is go in expecting the worse and protect yourself accordingly and do everything guided by a good conscience.
Just to make sure we are on the same page... Let's say we have an LLC that two affluent investors and me, a poor PhD student started a while ago. Let's say we were successful in managing the initial pie and decided to get bigger, by creating an LLP whose general partner is the LLC the three of us are members of. The initial investors keep their own money (plus add some more) and the limited partners add a bunch more...
Things are OK, everyone is happy. However, if, God forbid, smth were to happen and some limited partner(s) decided to sue the LLC, in my case, there's not much they can get, I'm still relatively poor But the other two members are quite liquid, to put it mildly. Also, I make all the trading decisions and ultimately, the responsibility is on my shoulders. Are you saying the assets of the other two LLC members are safe? Did I understand you correctly? Again, assuming nothing illegal was conducted, etc etc.
PS Glad to see that at least one thread I started ended up being a productive one Thanks for the input everyone.
There is a good deal of valuable info here but the one thing I would add is to get a good, agressive and reputable attorney firm to represent you. When attorney's take on clients they are also taking on the risk because they are now giving legal advice. If someone files a suit and the attorney's have offered poor advice they are now liable. This keeps them working hard but it is VERY expensive at times.
There is nothing like going up against a heavy hitter or the SEC and knowing who is in your corner though. Good Trading.
as far as i know, yes--the investors are safe. however, i strongly reccomend you consulting an attorney who has experience in these matters.
Here are just a few general things from my CPA study guide. I would also agree that this stuff should be set up with a good Attorney, or those preprinted forms you can buy at Staples.
1995-1996 Gleim CPA Review, Business Law.
Partnership law is codified in the Uniform Partnership Act (UPA) in all states except Louisiana.
Two or more people conducting business with the INTENT for Profit, no profit must be earned.
No formal agreement is needed, however if the partnership is to last more than 1 year, the statute of frauds requires the agreement to be in writing.
More than co-ownership is needed, i.e. share in profits and losses
Partnership needs to be treated as a separate entity from its members. i.e. holding assets in separate accounts.
General Partner assumes management of the partnership and has full personal liability for debts of the partnership.
A GP may be another partnership or a corp if its articles permit.
A limited partner is liable only to to the amount of capital contributed to the partnership. Limited Partners do not and (may not) participate in active management. LPs may lose limited liability status by taking control of, managing, or donating services to a partnership. (See Northampton Valley Constructors vs. Horne-Lang Associates) From The Legal Environment of Business, 4th edition Roger Meiners page 395.
The Revised ULPA requires a written CERTIFICATE of LIMITED PARTNERSHIP with the Secretary of State. This lets creditors know of Limited Liability Status. Failure to file could cause treatment as an ordinary partnership.
Separate names with a comma.